What is the role of competition in the marketplace? That’s the question surrounding a recent uproar in Fuquay-Varina, a Raleigh suburb located in the southwest corner of Wake County. Food trucks – a Triangle staple – have arrived in the town, and some restaurant owners are not happy. And what’s more – they’re being surprisingly candid about the reasons for their push to regulate food trucks out of town.
Some Fuquay-Varina restaurant owners have taken their concerns to the town’s government. Ed Ridpath, chairman of the town’s planning board and a former member of its board of commissioners, summed up those concerns in a recent article at WCNC:
The concern is that if I’m a business owner, I’m counting on a rush of customers on Friday night. If there’s a food truck nearby, maybe they’re taking some of my business,” said Ed Ridpath, the Chairman of the Fuquay-Varina Planning Board.
In Ridpath’s defense, he is one of the members of the planning board who is against an all-out ban. And as a member of the board of commissioners, he voted to allow food trucks in the first place. But if his understanding of the debate surrounding food trucks is accurate, this is a serious cause for concern. It seems that the town is not weighing the safety of allowing food trucks, but is instead simply deciding whether and how much to shield incumbent business owners from competition. This seems to be the case – as reported by the News & Observer in January:
Yury Rojas, owner of Anna’s Pizza, couldn’t be reached for comment but a manager confirmed they have complained to the town about the trucks … On Tuesday, Charles Barnes was the lone speaker in favor of the proposed ban. He’s a partner in South Main Market, a downtown real estate company. It owns the building between Fainting Goat and The Mill, where Beef O’Brady’s was until it recently closed.
Like those who were against the proposal, he acknowledged room for compromise and asked the town to include his business in future discussions.
“We’re not opposed to food trucks,” Barnes said. “We think food trucks should be regulated.”
Okay, but why should they be regulated? Is it simply to protect incumbents from competition? If so, this is an illegitimate reason – morally, economically, and, increasingly, legally.
Morally, the use of government force as a tool to stifle fair competition is simply wrong. In a free society, people should be able to pursue their trade free of irrational legal barriers that serve only special interests. There’s nothing wrong with a business owner disliking competition – in fact, most people dislike having to compete for a living – but that doesn’t give businesses a license to regulate away anyone who dares challenge them in the marketplace.
Economically, competition serves an important function in a free market. It keeps prices low and generally increases the quality and selection of goods available. This happens precisely because businesses have to compete with one another for consumers. It’s no surprise, then, that some businesses try to avoid this hardship by getting special treatment from the government. But such special treatment acts as a constraint on supply, limiting competition and therefore reducing the benefits produced by competitive market forces. This means higher prices and less quality and choice for consumers.
Legally, several federal appeals courts have found that economic regulations cannot be used to eliminate competition under the guise of law. The Fifth Circuit Court of Appeals has found that “neither precedent nor broad principles suggest that mere economic protection of a particular industry is a legitimate governmental purpose … It is aptly described as a naked transfer of wealth.” The Sixth Circuit Court of Appeals agrees, and has held that “[P]rotecting a discrete interest group from economic competition is not a legitimate governmental purpose.” The United States Supreme Court held in City of Philadelphia v. State of New Jersey that “where simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected.” However, that case has been limited to its particular facts under the United States Constitution’s Interstate Commerce Clause.
American courts are still far from taking a hard stand against economic protectionism. The Tenth Circuit Court of Appeals has found that “state legislation granting special benefits to an intrastate industry, absent a specific federal constitutional or statutory violation, does not run afoul of the Equal Protection Clause.” This decision creates a clear split between federal circuit courts on the issue of economic protectionism. Despite calls to take up the issue from numerous groups, including the Center for Law and Freedom and the Cato Institute, the U.S. Supreme Court has yet to provide any clarification.
Further, given the lax nature of the rational basis test under which economic regulations are evaluated by courts, state actors merely need make a half-hearted appeal to some state interest like “safety” in order to see economic protectionist legislation upheld under the guise of some other interest. You can bet your bottom dollar that if the Town of Fuquay-Varina does enact a ban on food trucks, it will claim to be for the purpose of protecting some interest other than economic protectionism. Such a claim would likely be enough to defeat any constitutional challenge. We’ll know more on Feb. 15, when Fuquay-Varina staffers are expected to bring the planning board draft regulations. Hopefully the town will side with the free market, leading to more choices and lower prices for consumers.