The Banana Republic of NYC

It is a regular theme here at EPJ that government regulations suffocate creativity in the economy. It is going to be a major problem in healthcare when Obamacare regulations start to kick in.

Here's Adam Davidson on the regulated food truck industry in NYC:

The food-truck business, I realized, is a classic case of bureaucratic inertia. The city has a right to weigh the interests of food-market owners (who don’t want food trucks blocking their windows) and diners (who deserve to know that their street meat is edible, and harmless). But many of the rules governing location were written decades ago. In the ’80s, the city capped the number of carts and trucks at 3,000 (plus 1,000 more from April to October). Technically, a permit for a food cart or truck is not transferable, but Andrew Rigie, executive director of the N.Y.C. Hospitality Alliance, said that vendors regularly pay permit holders something like $15,000 to $20,000 to lease their certificates for two years. Legally, the permit holder becomes a junior partner in the new business.

As Rigie spoke, I was reminded of corrupt countries that I’ve visited, like Iraq and Haiti, where illogical and arbitrarily enforced rules create the wrong set of incentives. Perhaps the biggest winner in our current system is an obscure type of business known as an authorized commissary. By city law, every food cart and truck must visit a licensed commissary each day, where a set of mandated cleaning services can be performed. These commissaries also sell and rent carts and sell vendors food, soda, ice cream and propane. Rigie told me that many commissary owners make a bit extra by acting as informal brokers, facilitating the not-quite-legal trade of permits, which, by some estimates, is a $15 million-a-year business. Given their city-mandated stream of business, these commissaries have essentially formed an oligopoly. As a result, they have little incentive to compete aggressively by offering different kinds of food. No wonder we have an oversupply of hot dogs and knishes and nowhere near enough waffles and falafels.

Economically speaking, the problem is a standard one, known as the J-curve, which represents a downslope on a graph followed by a steep rise. Some sensible changes to the current food-vendor system may have long-term benefits for everyone, but the immediate impact could spell short-term losses for those who now profit from the system. A small group of New Yorkers — particularly owners of commissaries and physical restaurants — are highly motivated to lobby politicians not to change things. And most of the potential beneficiaries don’t realize they’re missing out. Many of the rest of us would love to have more varied food trucks, but we don’t care enough to pressure the City Council.

The one group that clearly suffers from the current system — the ticketed vendors — are often poorly paid immigrants without legal status and virtually no power. This sort of dynamic more or less sums up the economies of the third world. Economists generally agree that one of the distinguishing factors between rich countries and poor ones is that it is much easier to start businesses in rich countries. In Ecuador, for example, it takes about 56 days and 13 separate procedures to get all the legal paperwork done to start a new business. In the United States, it’s an average of six days and six procedures. But if you want to open a mobile-food business in New York, it’s essentially like starting a business in Ecuador — and that’s if you can somehow arrange a permit.

After I left Prospect Park, I went home and began to read about Portland, Ore. The city embraced food-truck and cart culture and has made the procedure for starting a business remarkably easy. I found a Web site listing the carts and trucks operating there: Caribbean, Cajun, Central American, creperie, Cambodian, Cuban, Czech. And that’s just the C’s.