Wednesday, May 27, 2020
May 27, 2020

Linkedin Pinterest

Will: Markets, not bureaucrats, know needs


Governments, seemingly eager to supply their critics with ammunition, constantly validate historian Robert Conquest: The behavior of any bureaucratic organization can best be understood by assuming that it is controlled by a secret cabal of its enemies. Consider North Carolina’s intervention in the medical-devices market.

Born in India, Dr. Gajendra Singh is a U.S. citizen and a surgeon in Winston-Salem who wants to supply something useful for which there is a strong demand. North Carolina’s government is, however, an impediment to his doing so.

Singh runs a medical diagnostic imaging center where patients can get X-rays, echo-cardiograms, ultrasounds and CT scans. It cannot, however, be a full-service center without an MRI machine, and local hospitals offering MRIs are averse to competition.

Americans with high-deductible insurance plans, which are increasingly prevalent, especially need low-cost diagnostic services. The median Winston-Salem household income is about $40,000. The average MRI scan at a North Carolina hospital costs $2,000. Singh charges $500-$700 for the MRIs he does using rental machines that the state’s harassing law requires to be moved once a week. Singh wants to buy an MRI machine. North Carolina, however, has a “certificate of need,” or CON, law, requiring Singh to prove to the Soviet-style central planners in the state government that Singh’s area needs another machine.

Mischief teaches lessons

Such state and local laws proliferated in the 1970s as the federal government began pouring money into health care and government-funded hospitals tried to protect their revenue streams. Just for the privilege of submitting an application to buy an MRI Singh would have to pay a nonrefundable $5,000 fee and be prepared to spend $400,000 (lawyers, consultants, economists) to surmount the opposition of determined competitors. The only two providers of fixed MRIs in Singh’s county are at two multibillion-dollar hospitals.

Fortunately, Singh has the support of the Institute for Justice’s litigators who are wielding on his behalf four provisions of North Carolina’s constitution.

There are states where aspiring entrepreneurs must pay (application fees, lawyers) just to try to surmount the opposition of established businesses in order to get a CON entitling them to open a car dealership, operate a moving company, run a food truck or other areas of enterprise. And the audacity of economic interests clamoring for government protection from domestic competition seems to be increasing as the Trump administration practices crony capitalism to protect favored industries and companies from foreign competition.

There are three important lessons from North Carolina’s CON mischief. First, domestic protectionism that burdens consumers for the benefit of entrenched economic interests is even more prevalent and costly than are tariffs and import quotas that interfere with international trade. Second, the sprawling, intrusive, interventionist, administrative state that recognizes no limits to its competence or jurisdiction is inevitably a defender of the entrenched and hence a mechanism for transferring wealth upward. Third, only courts can arrest the marauding of the political class when, with unseemly motives, it pretends to know more than markets do about society’s needs.