Maryland's Occupational Licensing Regime Hurts the Poor

On July 21, 2015, Steven Horwitz, Affiliated Senior Scholar at the Mercatus Center at George Mason University and Professor of Economics at St. Lawrence University, released a paper entitled “Breaking Down the Barriers: Three Ways State and Local Governments Can Improve the Lives of the Poor.” Professor Horwitz explains how poor residents can be consigned to poverty through occupational licensing, zoning and small business regulations, and regressive taxation. Professor Horwitz states that simply by reducing such burdensome laws and regulations, state and local governments can promote upward mobility – the process of poor residents achieving beyond their current economic status.

Since 2006, Free State Foundation scholars have advocated free market policies at the local, state, and federal levels. (See this July 2015 blog on the need to improve Maryland’s business climate.) Policies that increase economic growth often help the poorest members of the community the most because any increase in a poor person’s standard of living can be life changing. In this blog, I will specifically refer to Maryland’s laws on occupational licensing and how they are harming the poorest residents of the state.

Occupational licensing is a set of government requirements that individuals must complete before they enter a specific labor market. Unfortunately, Maryland has plagued its residents with way too much occupational licensing. Under the Division of Occupational and Professional Licensing, Maryland has 22 licensing boards, commissions, and programs appointed by the governor regulating 24 different occupations. Granted, in order for professionals to prevent consumer harm, many occupations require strong training, experience, and attention to detail. But such qualifications for an occupation should not always necessarily require government regulations. Here are some occupations that require licensing in Maryland where the need for licenses is not self-evident: Professional Boxers, Athlete Agents, Barbers, Cosmetologists, Interior Designers, Foresters, Locksmiths, Plumbers, Real Estate Agents, Stationary Equipment Mechanics, and Pawnbrokers.

Some of these occupational licenses may seem silly, like a Professional Boxing license, while others seem more legitimate, like a Mechanics license. But while I understand why people would want some of these occupations to have licenses from a public safety concern, lacking the arbitrary requirements for government approval does not always make a person physically unqualified. And in poor Baltimore neighborhoods, where housing is often falling apart, getting broken into, or flooding, there is a demand for inexpensive plumbers, mechanics, and locksmiths. However, occupational licensing requirements make those services more costly for the poor.

The Division of Occupational and Professional Licensing is responsible for regulating the activities of more than 225,000 individuals, corporations, and partnerships. In a state with just less than 6 million people, this may seem like a small fraction of workers who are subject to the burden of occupational licensing, but in reality, occupational licensing impacts everyone in Maryland.

Some people benefit – in the wrong way – from occupational licensing. Professor Horwitz describes this through Bruce Yandle’s classic “Bootleggers and Baptists” story. The bootleggers supported the prohibition of alcohol because they were self-interested entrepreneurs who benefited from restricted competition and higher prices, while the Baptists supported prohibition because they had concerns regarding the health habits of the country. Policymakers and citizens might value restrictive occupational licensing because they believe it will protect against fraud, malpractice, or abuse. They are the “Baptists” in this scenario because they support occupational licensing, at least on the face of it, as a means to prevent consumer harm.

The other group of people that benefit from occupational licenses are the workers who have already obtained them. The costs of obtaining a license restrict competition in labor markets, therefore licensed workers can charge higher prices and earn higher wages. Just as bootleggers supported prohibition so they could charge higher prices with fewer competitors, workers who have already obtained occupational licenses benefit from such labor market restrictions. Professor Horwitz added the following:

By raising the cost of entering an industry and thereby reducing the level of competition within it, occupational licensure laws enable those who have licenses to capture a larger share of the market or higher wages than they would otherwise. One estimate reveals that licensing increases wages by about 15 percent and, when combined with union membership, that wage premium averages 24 percent.

Of course, these higher wages through a reduction in competition are then passed along to consumers in the form of higher prices. Professor Horwitz wrote: “The reduction in competition also means that existing suppliers can charge higher prices and get away with providing lower-quality service. These costs are real to consumers, who lose the value of lower prices and better service and see that value transferred to the pockets of the politically protected producers.” A July 2015 report from the White House entitled “Occupational Licensing: A Framework for Policymakers,” found the evidence demonstrating occupational licensing’s upward pressure on prices “unequivocal.”

Because consumers ultimately pay higher prices as a result of the restricted competition, the increase in prices is disproportionately harmful to the poorest consumers. The higher a person’s income, the more willing that person is to adapt to price increases. Therefore, artificial increases in prices through occupational licensing have a large negative marginal impact on the poorest consumers. For example, pawnshops in Maryland, which can provide inexpensive goods, additional income, or short-term loans to poor individuals, are charging higher prices and interest rates than they would be able to charge if workers were not required to have an occupational license.

But the poorest individuals also experience the greatest burden on the other side of the market – as workers. Poor people often do not have the resources to acquire the mandated training, take the required tests, or pay for the licensing fees. This pushes them out of a labor market in which they may be skilled enough to compete. For example, a licensed plumber in Maryland must complete 3,700 hours in training. But a poor person with only 1,000 hours of training may be perfectly capable of fixing a toilet. It is not illegal for him/her to do so, but it is illegal to accept money for the service.

Professor Horwitz calls this impact on the poor a “double whammy”: “Because many licensed occupations offer products or services that are bought by the poor, licensing laws hit the poor twice—once in the form of limiting job opportunities and then again in the form of higher prices.” The White House report says that “licensing can shift resources from workers with lower-income and fewer skills to those with higher income and skills.” It also cites one study which estimates that “licensing restrictions cost millions of jobs nationwide and raise consumer expenses by over one hundred billion dollars.”

Yet, some people claim that occupational licenses prevent unqualified workers. However, such regulation ultimately incentivizes those who have received a license to perform less adequately. Competition, in lieu of restrictive occupational licensing, is a more robust form of regulation where consumers, not the government, choose which workers are most valuable. As Professor Horwitz declared: “Market competition is a powerful regulatory force of its own because firms and service providers understand that their profits frequently rest on their reputations.”

Of course, occupational licensing is not the only or even the main reason for poverty in places like Baltimore, Salisbury, or Prince George’s County, but it still remains a barrier to prosperity for many individuals. There should be more opportunity for poor residents to act as entrepreneurs within their community. Without eliminating all the occupational licensing in Maryland, there likely would be much more economic activity in poor areas if the state reduced its restrictions on who is allowed to sell their services.

Five Flaws with the FCC's Push for Video Device Controls

August 4 marks the next meeting of DSTAC - the Downloadable Security Technical Advisory Committee. Unfortunately, the FCC has saddled the advisory committee with some bad advice. The agency has urged DSTAC to go beyond its statutory mandate and recommend new standards for how video devices function and display content.

The FCC's approach is flawed for at least five different reasons. Namely: it exceeds Congress's instructions; it creates obstacles to DSTAC completing its real task; it undermines freedom to innovate in the video device space; it's unwarranted by the competitive conditions in today's video market; and it's contrary to First Amendment principles.

DSTAC was assembled pursuant to the STELA Reauthorization Act of 2014. The Act required the FCC Chairman establish a working group to recommend standards for software-based downloadable security to video navigation devices. The standards are supposed to be "not unduly burdensome, uniform, and technology- and platform-neutral." DSTAC's report to the FCC is due September 4, 2015. (Further background is supplied in my blog post, “FCC Shouldn’t Push Video Device and Content Controls on Advisory Committee.”) 

Software security involves serious complexities. Network and device interfacing pose added intricacies. These challenges make DSTAC's assignment formidable enough. Still, the subject matter of the report's mandate is clear enough: focus on downloadable security. Regrettably, the FCC staff has now added to those challenges by injecting its pet project ideas into DSTAC's mission and upcoming report.

The FCC has manipulated DSTAC into resurrecting a set of video device standards similar to the agency's ill-fated AllVid plan. As initially proposed in 2010, AllVid would have mandated all multichannel video programming distributors (MVPDs) make available to subscribers special "adapter" or "gateway" devices for accessing MVPD services. AllVid also would have required disaggregation of MVPD video programming and related content for unaffiliated providers to repackage and sell. Taking a page from the AllVid plan, FCC staff instructed DSTAC that a "black box" for third parties to repackage content and menu products for (re)sale should be included in its report to Congress.

In effect, the FCC is pushing DSTAC to recommend an AllVid-like regulatory regime as a successor to the $1 billion-costly and ultimately unlawfully-imposed CableCARD regime. There are five flaws in the FCC’s steering DSTAC toward broader video device design controls.

First, the FCC has exceeded its instructions from Congress. The agency is not being accountable. Its actions are at odds with the terms of STELAR. Whatever the practical effects the FCC’s actions may have on the report or video device policy, the agency’s disregard of the rule of law is wrong in itself.

Second, the FCC has created new obstacles to DSTAC obtaining consensus and completing the report as required. Tasking DSTAC with contentious, extraneous objectives can delay or derail agreement on its core objectives. By instructing DSTAC to include disaggregation of video programming and menu displays, the FCC has increased the incentives for certain stakeholders to reap financial gains at the expense of MVPDs and video content providers. Putting MVPDs and video content providers further on the defensive and with nothing to gain makes consensus on security standards less likely, not more likely.

Third, the FCC's push for greater controls undermines market freedom to design and products and services for consumers. Many consumers already take advantage of MVPDs' engagement with unregulated manufacturers of mobile devices, tablets, video game consoles, and other devices for viewing video programming. Those developments in video device and viewing took place outside the scope of FCC regulation. Had it been adopted in 2010, AllVid would have threatened those developments. And by pressing DSTAC to recommend a "black box" for repackaging unbundled content and menu displays, the FCC risks distorting future developments. 

Fourth, the FCC's push for greater controls for how video devices are designed and function is unwarranted by market conditions. Regulatory controls or heavy-handed influence by regulators can’t be justified in light of the prevalence of innovation and competition in the video market. There is no evidence of harm to consumers that requires new video device design restrictions.

In its Effective Competition Order (2015), the FCC adopted a presumption against regulation because of today's competitive video market conditions. (FSF President Randolph May analyzed the Order in his blog, "Dealing Effectively With Effective Competition.") Unlike the early 1990s, two nationwide DBS providers and so-called telco-MVPD entrants now offer consumers choices. Online delivery services (OVDs) such as Netflix and Hulu are also increasingly popular consumer choices. Those same facts and the Order's deregulatory presumptive outlook should inform video device policy. Growing consumer video content viewing via tablets and smartphone devices also belies the existence of any market failure or market power concerns requiring regulatory intervention.

Finally, the FCC's call for device design and function controls is at odds with First Amendment principles. MVPD editorial choices regarding video programming content, arrangement, and menu displays are protected forms of free speech. AllVid's proposed requirement for disaggregation of MVPD video programming and related content would have interfered with MVPDs' ability to select, control, and identify their own unique message and branded service. The FCC staff's instructions that DSTAC develop a method to disaggregate bundled content and menu products into outputs for third parties to reassemble and rebrand presents similar First Amendment problems.

Going forward, both the FCC and DSTAC should focus their efforts on what Congress actually required: recommending a standard for downloadable security. Pursuing FCC regulatory ambitions beyond what STELAR instructed puts accomplishment of DSTAC's real assignment at risk. And given the complexities of the task as well as time resource constraints, it is unrealistic to think DSTAC could ever settle on an AllVid-like "black box" standard – even if Congress had requested it, or even if such a standard made sense, which it doesn't.

Providers in different segments of the video market should be left free to pursue the design of broader video device functions and interfaces. Negotiations and arrangements on such matters should be voluntary. They should not be decided through a suspect process in which regulators place their thumbs on the scales.

Consumer enjoyment of MVPD and other video content viewing options – whether through Wi-Fi or wireless, mobile devices, tablets, video game consoles, or otherwise – is the result of market innovation, not FCC regulation. Subjecting dynamic market forces to regulation undermines the innovation-driven processes that benefit consumers, thus harming consumers. Whatever DSTAC's report ultimately calls for, Congress and the FCC should ensure that those same dynamic forces at work in the video market remain free to offer consumers a continuing supply of new video viewing choices. 

* Correction (07/30/15): DSTAT's report will be submitted to the FCC, not to Congress.

Uber's New Feature Likely Caused de Blasio to Drop Bill

On Wednesday, July 22, New York City Mayor Bill de Blasio dropped his proposed legislation which would have slowed the growth of Uber in NYC by limiting the number of drivers it could add over the next year, according to a New York Times article. This is very good news for the NYC economy. Prior to the bill’s cancellation, according to a TechCrunch article, David Plouffe, Chief Advisor for Uber, said the regulation would “cost 10,000 jobs, hurt underserved areas, and make wait times for Uber cars skyrocket.”

Mayor de Blasio likely dropped the proposed legislation due to an outcry from consumers and drivers, which Uber helped enable through use of its application. Even a couple famous celebrities jumped in on the action.

Proposed bill will result in longer wait times, higher prices, and less reliable service for riders. #deBlasioUber pic.twitter.com/5R2ToNhEuY

— ashton kutcher (@aplusk) July 21, 2015

.@BilldeBlasio Why do you want to return to days when only those in Midtown & Lower Manhattan could get a ride? #UberMovesNYC

— Kate Upton (@KateUpton) July 22, 2015

In response to the bill, Uber added a so-called “de Blasio’s Uber” feature to its application for over 2 million NYC users. When NYC users clicked on this feature it showed either no available drivers or a wait time of 25 minutes, representing how Mayor de Blasio’s proposed legislation would have severely impacted the market. (Uber rarely has a wait time over 5 minutes in populated cities.)

Then, instead of contacting a driver, the feature prompted an email to Mayor de Blasio and NYC’s City Council Members with an automatic statement opposing the bill. 

Free State Foundation Scholars submitted comments to the FTC prior to its June 9 workshop, warning against burdensome “sharing economy” regulations that did not serve legitimate health and safety objectives. FSF Scholars stressed that policymakers should focus on how the sharing economy has brought consumers efficiency, affordability, and convenience. So, it is good that consumers and drivers stood up against Mayor de Blasio’s protectionist legislation that would have inhibited Uber’s growth.

This example may dampen efforts by government officials in this country and around the world to restrict innovative new sharing economy businesses that benefit consumers by creating more competition and choice.

The IP Transition: Focus on Consumers, Not Propping Up Competitors

In a blog posted on July 10, FCC Chairman Tom Wheeler announced he was circulating an item to be considered at the Commission’s August 6 meeting “that would update the FCC’s rules to help deliver the promise of dynamic new networks, provide clear rules of the road for network operators, and preserve our core values, including protecting consumers and promoting competition and public safety.”

He also said this:

The transition to efficient, modern communications networks is bringing new and innovative services to consumers and businesses. The Commission’s approach to these technology transitions is simple: the shift to next-generation fiber and IP-based networks from analog switch- and copper-based networks is good and should be encouraged.

The IP transition is extremely important for America’s consumers, so it is good that the Commission will be considering moving forward at its August meeting, because, frankly, the agency’s process in facilitating the IP transition has lagged more than it should.

My colleague Seth Cooper and I submitted comments to the Commission in the IP Transition inquiry (“Transition from Legacy Platforms to Services Based on Internet Protocol”) back in January 2013. And Free State Foundation scholars will continue to comment on the transition going forward. But, for now, I want to highlight, at a high-level, some concerns arising from the way Chairman Wheeler framed the issues in his blog and “Fact Sheet” posted at the same time.

In my view, it appears that Mr. Wheeler’s disposition – and perhaps that of his colleagues Commissioners Mignon Clyburn and Jessica Rosenworcel as well – to engage in micro-managing competition in the name of promoting it will ultimately harm American consumers. This is true even if this disposition results, in the short term, in propping up some “competitors.” I am referring to the statement to the effect that, “to preserve competition in the enterprise market,” Mr. Wheeler proposes to “require that replacement services be offered to competitive providers at rates, terms and conditions that are reasonably comparable to those of the legacy services.” This new “unbundling and sharing” requirement is put forth as an “interim” requirement, “pending completion of the FCC’s special access proceeding, which is examining these issues more broadly.”

There are several points I want to make about this way of framing the IP Transition issues (again, which will be addressed as well in later posts).

First, this is another case of Chairman Wheeler’s inclination to adopt intrusive regulatory mandates in a market that, by his own admission, presently is competitive, not subject to market failure. Note that his Fact Sheet refers to “preserving” competition in the enterprise market. In his blog, he refers to competitive providers presently serving hundreds of thousands of businesses and other non-residential enterprises.

Second, Mr. Wheeler says the new mandates are intended to be in place “pending completion” of the special access proceeding. Frankly, I just hope I live long enough to see the end of this interminable proceeding. In one form or another, it’s been going on for more than a decade. And the way the Commission has framed the issue – supposedly looking to determine whether competition exists on a building-by-building location all over the U.S. – and with competitors, not surprisingly, resisting giving up what they consider to be their sensitive customer information, the special access proceeding is unlikely to be completed in the next ten years.

Third, if the special access market is presently competitive, as Mr. Wheeler acknowledges, why has the Commission been wasting so much time, and causing the expenditure of so many resources, investigating that market over the last decade?

Fourth, the proposal to require sharing of “replacement services” at rates, terms, and conditions that are reasonably comparable to those under which the wholesale legacy services are acquired is a bad idea. It makes you wonder whether Chairman Wheeler is fully aware of the ruinous results of the Commission’s ill-fated Unbundled Network Element regime, which mandated unbundling and sharing of the legacy copper network piece parts. It is now widely acknowledged by economists and analysts that the implementation of the UNE sharing regime, with the Commission setting prices for the unbundled elements, discouraged new entrants from building out their own network facilities and incumbents from investing in new facilities. And it is widely acknowledged in the same quarters that the decision by the Commission – thus far – to refrain from requiring unbundling and sharing of fiber and IP facilities has played a substantial role in fueling the last decade’s investment boom in those advanced facilities.

Policies that encourage sustainable facilities-based investment enhance overall consumer welfare far more than policies purporting to support competitors by mandating facilities-sharing. In implementing the Telecom Act of 1996, the FCC paid lip service to recognizing the benefits to consumers when providers invested in their own facilities. For example, the Commission said: “[C]onsumers benefit when carriers invest in their own facilities because such carriers can exercise greater control over their networks, thereby promoting the availability of new products that differentiate their services in terms of price and quality.” This is true. But, unfortunately, the Commission’s policies, by making facilities-sharing so attractive, discouraged new entrants from investing in their own networks. The agency should not repeat that mistake now as part of the IP transition.

Fifth, if the Commission adopts a rule that requires sharing of facilities at “reasonably comparable” rates, then it necessarily will be embarking on a rate regulation regime that, inevitably, will be burdensome, time-consuming, and costly. This too is a lesson of the failed UNE regime. It is naïve to assume that competitors vying for customers are going to agree on what constitutes “reasonably comparable” rates – joining hands singing “Kumbaya.” Instead, it is much more likely the FCC will be setting rates for sharing elements of new fiber and IP facilities.

Sixth, all of the focus on protecting competitors seems to suppress what should be an important focal point regarding consumers – who, after all, should be the primary object of the Commission’s attention. There is a consumer-oriented imperative for the Commission not to delay the transition to IP networks. Indeed, Chairman Wheeler acknowledges the benefits new, more efficient next generation networks will bring consumers in terms of innovative services.

But the reality is that the transition will be slowed if the service providers are required to maintain two separate legacy and IP networks. As Seth Cooper and I said in our January 2013 comments, “service providers necessarily will have fewer funds available to invest in new broadband facilities as they continue to sink scarce capital into legacy facilities utilized by a dwindling number of customers.”

In sum, as the Commission moves forward, it should keep its primary focus on enhancing overall consumer welfare, not on protecting competitors by adopting measures that will discourage investment in new IP facilities by newer entrants and established providers alike.

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Don’t miss FSF’s lunch seminar, “Implementing Real Regulatory Reform at the FCC,” on Tuesday, July 28, from 11:45 a.m. – 2:00 p.m., at the National Press Club. FCC Commissioner Michael O’Rielly will deliver keynote remarks. His remarks will be followed by a panel discussion, moderated by FSF President Randolph May, with Richard Wiley, former Chairman, Commissioner, and General Counsel of the FCC, and Gus Hurwitz and Daniel Lyons, both telecom and administrative law scholars who are members of FSF’s Board of Academic Advisors.

A complimentary lunch will be served, but you must register to attend. You may register here.

Maryland's Small Business Regulatory Climate Ranks Poorly

Over the past two weeks I published two separate blogs that addressed different facets of Maryland’s economic health. Here I want to address another one.

In Maryland Needs to Improve Its Fiscal Health, published on July 9, I referenced a recently released study from George Mason University’s Mercatus Center titled, “Ranking the States by Fiscal Condition.” The study concluded that Maryland presently ranks 37^th among the 50 states with respect to its overall “fiscal health,” based on an assessment of five separate measures of its fiscal solvency. I recognized that Governor Larry Hogan has begun to take some positive steps to improve Maryland’s structural budget deficit, and I urged the legislators to cooperate in a sustained effort to restrain state spending.

In Maryland Needs to Improve Its Regulatory Climate, published on July 11, I commended Governor Hogan’s formation of a new Regulatory Reform Commission, tasked with examining regulations to determine which ones are making it unnecessarily burdensome to do business in Maryland. The establishment of the commission is a welcome step for the focus it brings to the need for regulatory reform.

Now, Wayne H. Winegarden, Ph.D., Senior Fellow in Business & Economics with the Pacific Research Institute, has just released the 50-State Small Business Regulation Index. In a lengthy, detailed report, Dr. Winegarden compares all 50 states based on an assessment of fourteen different factors that impact a state’s regulatory environment on small businesses. Thus, the Index creates a common platform to compare each state’s regulatory burdens on small businesses. Each one of the fourteen regulatory components included in the Index may impact the economic performance of small businesses.

With a No. 1 ranking as the least burdensome and No. 50 as the most burdensome, Maryland ranks poorly, overall, as No. 39. The report shows the ranking for each state for each of the fourteen different components, with some states ranking high with respect to some measures and low with regard to others. For example, Maryland ranks close to the top (No. 10) with regard to having a relatively favorable unemployment insurance rate but at rock bottom (No. 50, shared by others) with regard to the following measures: right-to-work state; alcohol control state; telecommunications regulations; and regulatory flexibility. [Hopefully, Governor Hogan’s newly formed Regulatory Reform Commission can improve Maryland’s performance regarding regulatory flexibility and telecommunications regulations.]

Below are the fourteen specific components that comprise the 50-State Small Business Regulation Index, along with a brief explanation for each ranking factor:

Workers Compensation Insurance

The Index uses the workers compensation costs, adjusted for industry composition, calculated by the Oregon Department of Consumer and Business Services in 2014 to rank the 50 states with respect to the burdens imposed by each state’s workers compensation program.

Unemployment Insurance

The Index uses the estimated employer contribution rates as a percent of total wages calculated by the U.S. Department of Labor for the calendar year 2014 as a proxy for the burdens imposed by each state’s unemployment insurance program on small businesses.

Short-term Disability Insurance Requirements

The Index differentiates the five states that require small businesses to purchase short-term disability insurance from the 45 states that do not burden small businesses with these mandates.

Minimum Wage Laws

The Index uses the prevailing state-wide minimum wage levels to rank the states based on their prevailing minimum wage as of February 24, 2015.

Expanded Family Medical Leave Act

As a proxy for the higher cost burdens on small businesses in the states that expand the FMLA, the Index categorizes the expanded FMLA benefits into one of ten key family leave categories as documented by the National Conference of State Legislatures and the national partnership for women and families.

Right-to-Work Laws

The Index differentiates the 25 states that have right-to-work laws from the 25 states without right-to-work laws.

Occupational Licensing Laws

The Index incorporates three proxies for the stringency and breadth of state occupational licensing requirements: (1) the number of job categories that require a license; (2) the share of workforce that is licensed; and, (3) the share of workforce that is certified.

Land Use Regulations

The Index uses the Wharton Residential Land Use Regulation Index (WRLURI), which is based on a nationwide survey of local land use control environments, to measure the stringency of the land use regulations across the states.

Energy Regulations

The 50-State Index of Energy Regulations serves as a proxy for the impact from each state’s energy regulations on small businesses’ cost structure.

Tort Liability Costs

Due to different state litigation environments, litigation costs vary across the states. To capture the variation in the litigation environment, the Index ranks the 50 states based on a tort liability survey conducted for the Institute for Legal Reform by Harris Interactive Inc.

Regulatory Flexibility

To assess the extent of relief from each state’s regulatory flexibility program, the Index ranks the states based on two criteria: whether the state implements a regulatory flexibility program, and if it does, the size of the small businesses that qualify for regulatory flexibility.

Telecommunication Regulations

To incorporate these regulations into the Index, changes to each state’s telecommunication regulations were evaluated based on each state’s: oversight of services; oversight of pricing; the existence (or elimination) of quality standards; the existence (or elimination) of filing pricing reviews; and, carrier of last resort requirements (a carrier required to provide service to any customer in a service area that requests it at prevailing rates).

Start-up and Filing Costs

To capture these regulatory burdens across the states, the Index relies on a comparative summary of the favorability of state laws.

Alcohol Control States

The Index differentiates the 18 states that are alcohol control states from the 32 states that are not alcohol control states.

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Of course, not everyone will agree with the significance, or the weight given, to each of the index components. But most will agree that, on the whole, Dr. Winegarden’s comprehensive study, published by the Pacific Research Institute, provides a good assessment of a state’s overall regulatory climate for small businesses relative to other states.

And most will agree – or should – that with its ranking (No. 39) near the bottom of the states, Maryland has much room for improvement. In order to attract and keep small businesses, Governor Hogan and the Maryland General Assembly should focus on improving Maryland’s regulatory climate.

Senator Cruz Asks FTC To Not Regulate the Sharing Economy

On Friday, July 17^th, Senator Ted Cruz sent a letter to FTC Chairwoman Edith Ramirez asking the Commission to reject requests from Members of Congress and incumbent businesses to apply regulations to the sharing economy. Senator Cruz stated that burdensome regulations would restrict competition in the sharing economy which “offers consumers enormous freedom and economic potential.” He also declared the following: “In a number of instances, and in a number of states, pre-existing regulatory regimes have been extended to new entrants in ways that may ultimately deprive consumers of significant cost savings and convenience that would otherwise accompany an expanded sharing economy.”

Free State Foundation Scholars submitted comments to the FTC before its June 9^th workshop regarding the sharing economy. (See this Perspectives from FSF Scholars on the 8 takeaways from the workshop.) We commend Senator Cruz for encouraging the FTC to promote permissionless innovation, marketplace freedom, and consumer choice within the sharing economy.

Message to Google: Don't Be Inconsistent

Famously, Google’s motto is “Don’t Be Evil.”

But there are times I wish Google would change its mantra to “Don’t Be Inconsistent.” And then follow the injunction.

Here’s a good example.

Google is now arguing that the International Trade Commission does not possess authority to prevent entry into the United States of digital content that infringes upon intellectual property rights protected by law. Google took this position in a case before the ITC in which the six-member Commission, with only one dissenting vote, disagreed with its assertion that the agency’s authority to prevent infringing imports should be limited to physical goods.

Section 337(a)(1)(B) of the Tariff Act of 1930 grants the ITC the authority to prevent the importation for sale into the U.S. of “articles” that infringe valid copyrights and patents. Contrary to Google’s position, the Commission held that digital files constitute “articles” within the meaning of the statute. The case is now on appeal before the Court of Appeals for the Federal Circuit with oral argument scheduled for August 4, 2015 – and with Google still maintaining that the “articles” over which the ITC has jurisdiction do not include digital data.

The ITC case involves the importation of digital scans of dental appliances claimed to infringe patents. Suffice it to say that it is unnecessary here to bite off any more of the facts of the case than you or I can comfortably chew. Indeed, my purpose is not to sink my teeth into the arguments about the validity of the particular dental patents but rather to make a larger, more fundamental point concerning the ITC’s jurisdiction – and what Google previously has said about it.

Back in 2011-2012, when the Stop Online Piracy Act (SOPA) was being debated, Google and its allies opposing the bill intended to combat online piracy, suggested online infringement should be treated as an international trade issue. In a FAQ sheet opposing SOPA and supporting the alternative OPEN Act, here is what Google and its allies had to say then:

“For well over 80 years, the independent International Trade Commission (ITC) has been the venue by which U.S. rightsholders have obtained relief from unfair imports, such as those that violate intellectual property rights. Under Section 337 of the Tariff Act of 1930 – which governs how the ITC investigates rightsholders’ request for relief – the agency already employs a transparent process that gives parties to the investigation, and third party interests, a chance to be heard. The ITC’s process and work is highly regarded as independent and free from political influence and the department already has a well-recognized expertise in intellectual property and trade law that could be expanded to the import of digital goods.

The Commission already employs important safeguards to ensure that rightsholders do not abuse their right to request a Commission investigation and the Commission may self-initiate investigations. Keeping them in charge of determining whether unfair imports – like those that violate intellectual property rights – would ensure consistent enforcement of Intellectual Property rights and trade law.”

Mind you, this followed a heading asking: “Why is the International Trade Commission the best agency to handle cases of copyright and trademark infringement?”

And this too came from Google and its allies in supporting the OPEN Act: “This approach targets foreign rogue sites without inflicting collateral damage on legitimate, law-abiding U.S. Internet companies by bringing well-established international trade remedies to bear on this problem.”

In light of these statements touting the efficacy of international trade remedies, and the fact that SOPA and the OPEN Act obviously were all about protecting digital data, not physical goods, it’s hard to believe that Google is now arguing that the imported “articles” over which the ITC possesses authority do not include digital content.

Perhaps it should be enough to suggest that consistency is a virtue and leave it at that.

But it also should be emphasized that unless the ITC’s interpretation of the meaning of “articles” in the Tariff Act is clearly wrong, it makes sense for the statute to be construed to grant the agency authority to prevent importation of infringing digital data as well as infringing physical goods. After all, digital content comprises an increasingly large portion of international trade. Indeed, the Progressive Policy Institute has just released a new report titled “Uncovering the Hidden Value of Digital Trade: Towards a 21^st Century Agenda of Transatlantic Prosperity.” Not surprisingly, the report’s summary concludes: “More and more, global trade has come to rely on a vital commodity: data.” In the digital age, reading the protection of digital data out of the ambit of the ITC’s authority would significantly shrink its ability to prevent the importation of pirated copyrighted works and patents.

I’m not accusing Google of being evil, of course. Just of being inconsistent.

I’d rather not have to suggest that Google change its motto to “Don’t Be Inconsistent.”