Contact Us


Disruptive Competition Project

655 15th St., NW

Suite 410


Washington, D.C. 20005

Phone: (202) 783-0070
Fax: (202) 783-0534

Contact Us

Please fill out this form and we will get in touch with you shortly.
Close

Licensing in Pursuit of Morality

· November 9, 2017

Categories

This is the second post in a series on occupational and business licensing.

It’s official, New Yorkers: you are finally free to dance in any bar or restaurant. And, if you’re asking yourself, “wasn’t I already able to do that?” the answer is… not really.

As discussed in our first post, although in recent years it has not been as strictly enforced, the Cabaret Law made it illegal for patrons to dance in bars and restaurants in New York that do not have a “Cabaret License.” (Yes, it was basically the regulatory manifestation of the movie Footloose.)

However, last week New York’s City Council finally repealed the law, ruling it “outdated and unresponsive” to licensing demand — noting that only “100 of the city’s 25,000 eating and drinking establishments currently have a cabaret license” and rejecting opponents’ claims that the law played a crucial role ensuring patrons’ safety.

As the Cabaret Law illustrates, licensing laws, though perhaps well-intentioned, can take on a life of their own. Rather than protecting the public, they may allow incumbents and special interests to benefit at the expense of new and/or unlicensed players restricted from accessing the same markets or professions.

For this reason, licensing laws like the Cabaret Law require occasional re-examination. The Cabaret Law received this examination — and it was found to be unnecessary and anti-competitive. However, other licensing laws (of which there are many) often fail to receive the same level of scrutiny.

To apply this examination more broadly we must, first, understand licensing laws’ motivations.

Licensing Laws: Breaking Down Their Motivations

As we discussed in the first post of this series, occupational and business licensing regulations like the Cabaret Law underlie many other industries, including: the liquor, automobile, casket, and taxi industries.

The motivation of occupational and business licensing is, ostensibly, to benefit and protect consumers. However, as previously discussed, licenses vary in how they intend to accomplish this objective.

Over time, most occupational and business licenses have tended to fall into three categories: morality; quality; and supply restrictions, usually to guarantee a rate of return or manage congestion.

Think of it this way: licenses, in general, attempt to fulfill their objective (i.e. protect/benefit consumers) by upholding good morals or, conversely, restricting access to something immoral; ensuring the quality of a product; and capping supply, often in order to guarantee a return for vendors, in order to ensure a “stable” market for some service consumers rely upon.

Understanding which bucket these licensing laws fall into can be helpful when examining their efficacy. For example, the Cabaret Law’s objective: uphold morality and limit immorality.

Uphold Morality, Limit Immorality: Liquor and Cabarets

The desire to limit a public vice — specifically, a vice resulting or associated with drinking — propelled the passage of many licensing laws in the 20th century that are, somewhat surprisingly, still currently preserved.

As Prohibition was nationally repealed in 1933, Massachusetts passed a law granting municipalities one liquor license for every one thousand people — with the exception of Boston, which was awarded a cap of 1,000 licenses, total, for bars and restaurants. The law also gave the state’s Alcoholic Beverage Control Commission (ABCC) authority over awarding these licenses across all municipalities.

At the time the law was passed the ABCC published a report on their reasoning for establishing the law, asserting that although “the commission held that the vast majority of citizens want freedom of choice as to the use of alcoholic beverages,” the “harmfulness of various beverages should be utilized to reduce the evils of the business.”

Thus, despite acknowledging the public’s desires may not align, the ABCC restricted liquor licensing in the hopes of curbing the “evil” effects of alcohol on the public.

Cabaret licensing laws were similarly intended to protect people from the purported injurious effects of alcohol.

The “Cabaret Law” was passed in New York on December 7, 1926 and made it a requirement that any “public dance hall” — defined in the law as “any room, place or space in the city of New York in which dancing is carried on and to which the public may gain admission, either with or without the payment of fee” — must obtain a license in order for its patrons to dance.

And, though termed the “Cabaret Law,” its purview extended to a variety of institutions — namely, any place that has music, a form of entertainment or amusement, or serves food or drink.

Much like Boston, New York’s legislators claimed the law was necessary to uphold public safety. “The wild stranger and the foolish native should have the check-rein applied a little bit,” New York’s Committee on Local Laws reported when the law was being passed.  

“Your committee believes that these ‘wild’ people should not be tumbling out of these resorts at 6 or 7 o’clock in the morning to the scandal and annoyance of decent residents on their way to daily employment,” the report continues.

In addition to restricting people from attending these institutions by limiting their presence through licensing, the law stated that it would ensure the remaining institutions were safe by “attempt[ing] to impose regulations concerning safe occupancy, fire hazards and other matters that after Repeal became the province of a growing and increasingly sophisticated regulatory system.”

Thus, it is evident that the desire to uphold certain public morals is a motivation underlying many licensing regulations, such as New York’s (now repealed) Cabaret Law and Boston’s (still standing) restrictive liquor laws. However, licensing has also been motivated by other objectives — specifically, in the name of quality assurance. The next post in our series will explore these quality-motivated licensing laws through the lens of the casket, automobile, and orthodontic markets — three industries possibly never before grouped together in one sentence.

Innovation

New technologies are constantly emerging that promise to change our lives for the better. These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, and give consumers a voice. And the pace of innovation has only quickened in recent years, as the Internet has enabled a wave of new, inter-connected devices that have benefited consumers around the world, seemingly in all aspects of their lives. Preserving an innovation-friendly market is, therefore, tantamount not only to businesses but society at large.