The Permission Society. Timothy Sandefur
to prove to the satisfaction of government regulators that there is a “public need” for the business before the person may set up shop. But it is hardly ever possible to prove such a thing or to justify some new idea or new way of doing business beforehand. It would not have been possible in the late 1980s to prove that the United States “needed” a new chain of coffee shops: the country had plenty. Yet within a decade, Starbucks’s brilliant success proved that the public did, in fact, want a new chain of coffee shops. It is never possible to prove – it’s often impossible even to guess – whether a new idea will take off. The only way to tell is to try. But the permit system often makes it impossible to experiment, thus hampering the most important quality of free markets: the possibility of innovation.
Innovation is an elusive quality. It cannot be held in the hand or shown to the eye. It is potential. It is a chance for the future. Its impalpable and vital quality is captured eloquently in a story sometimes told about Benjamin Franklin: asked what some new invention was good for, he is said to have replied, “What is the use of a newborn baby?”14 One can never know what promise a new idea holds. Yet licensing laws and permit requirements essentially force one to know and quantify this unknowable value. And the cost and difficulty of obtaining a permit often stifles the fragile first steps toward innovation.
The costs of permits can be severe. To take just one example, the Endangered Species Act makes it illegal to “harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect” an endangered plant or animal without a federal permit.15 Since construction usually causes some kind of “harassment,” property owners who discover, say, the Delhi Sands flower-loving fly (Rhaphiomidas terminatus abdominalis) or the western prairie fringed orchid (Platanthera praeclara) on their land must get federal permits before beginning construction. It is impossible to say how much these permits will cost because the government treats each applicant differently, often requiring people to pay for extensive “mitigation” projects in exchange for permits. When one Georgia paper company sought a permit in 1999, the federal government forced it to fund a “conservation bank” to protect the red-cockaded woodpecker, at the cost of $50,000 per bird.16 In a Texas case, the government forced homebuilders to pay $1,500 per house into a fund for habitat preservation.17 And when Delhi Sands flower-loving flies were found on the future site of the San Bernardino County Medical Center, the government forced the center to pay over $3 million toward fly preservation18 – an expense and delay that likely cost human lives for the sake of flies. Simply negotiating over the terms of a permit can take years, with additional delays to prepare mandatory scientific reports, allow public comment, and evaluate proposals.19
In places where corruption is common or where permits are distributed only to influential insiders, the process is even bleaker. Permit requirements encourage corruption because the costs and delays lead people to seek extralegal alternatives. In an effort to demonstrate this problem, Peruvian economist Hernando de Soto tried to start a small business in his home country. It took 11 permits and 278 days. He was asked for bribes ten times during the process.20 That was minor compared to other countries he studied. Tanzania, for example, has such complicated and corrupt licensing rules that, according to de Soto’s calculations, a business that lasts 50 years will have to pay $91,000 to government officials and spend four years in bureaucrats’ offices seeking some form of permit. That doesn’t count the nine years of time waiting for the permits to be issued. “Is it any wonder that 98 percent of all businesses in Tanzania choose to be extralegal?” asks de Soto. “How else could a business owner get things done in an efficient manner, but to grease the palms of underpaid functionaries? No matter where you look, where you find more bureaucracy, you’ll find greater corruption.”21
Even without corruption and high fees, the cost of a permitting system can be incalculably high in one respect: potential new ideas can be lost forever if an inventor or entrepreneur decides he just doesn’t want to go through the hassle and delay. Innovations often begin as a hunch, as a barely articulable notion that a new way of doing business, or a new recipe, or a small tweak on existing technology might be better, more useful, or more satisfying. But when told that they will have to undergo expensive and time-consuming permit processes before being allowed to pursue a new idea, many simply give up without trying. The cost to society of stifling innovation is literally immeasurable. It takes the form of what economist Frederic Bastiat called “unseen” costs:22 wealth that might have come into existence but never does. Because it remains uncreated, it cannot be quantified and people don’t notice it precisely because it never exists. Yet these “unseen” costs are real – they are the new businesses, new technologies, new opportunities that never come about.
Consider the licensing requirements that the Food and Drug Act imposes on new drugs and medical technologies. The average cost of federal approval of a new drug is $1.3 billion,23 and the process involves years of tedious bureaucratic delay. Sick and dying patients – or people whose lives could be improved by new medicines to treat their eyesight, their allergies, or their daily pain – need new medicines now. The Food and Drug Administration (FDA), focused on preventing dangerous drugs from reaching the market, has little incentive to streamline its procedures. It gets no reward for quickly approving new drugs for sale, but it would be harshly condemned if it accidentally let a dangerous drug reach the market. The FDA is therefore biased against approving new medicines, to the detriment of patients who have no alternative but to wait. The diabetes drug Byuredon, for instance, was invented in the 1990s, but in 2010, after the developer had proven it safe through several clinical trials involving thousands of patients, the FDA refused to approve it for sale. Only after two more years of still more tests and reports did the agency grant approval. As we will see in chapter 7, states are now taking action to address the problem of federal delay, but for now the immense cost of developing new drugs makes it impossible to measure how many potential innovations are stifled – and how much needless human suffering is caused – by the permit requirement.
Ideas, said the poet John Milton, are actually more precious than life itself: “no age can restore a life, whereof perhaps there is no great losse,” he wrote, but “revolutions of ages do not oft recover the losse of a rejected truth.”24 It’s impossible to say how many innovations – whether they be as simple as a new kind of restaurant or coffee shop, or something as life-changing as a new medicine – have disappeared into the ether thanks to rules that block innovation.
Religious Liberty: The Victory of Freedom over Permission
Milton made that comment in the midst of England’s bitter seventeenth-century religious wars, and it was in the history of the struggle for religious freedom that America’s founding fathers learned the many problems with the permit system: the knowledge problem, the rent-seeking, the stifling of innovation, and the tendency toward corruption. They chose to reject the Permission Society established by British law. One particularly revealing example was their choice to establish a law of religious liberty, instead of the “toleration” that existed under the law of Great Britain.
When the founders were born, the Anglican Church was the official religious institution of the British empire. All subjects were expected to attend it and support it financially. For centuries, the monarchy had used the permit power to control both the church and the people. In 1549, for instance, representatives of King Edward VI warned England’s preachers that while he had “sent unto you the King’s Majesty’s License to preach,” they were “in no wise” to “stir and provoke the People to any alteration or Innovation ... but contrariwise, That you do in all your Sermons exhort Men to ... obedience to their Heads and Rulers.”25
Matters improved in the century that followed. The 1689 Toleration Act, signed by William and Mary as one of the conditions of taking the throne, promised to withhold persecution from Christians who believed in the Trinity, rejected the doctrine of transubstantiation, and pledged allegiance to the king as head of state and of the Anglican Church. This act, wrote the English jurist William Blackstone, represented “a very just and christian [sic] indulgence” toward religious minorities. Yet it excluded Unitarians, Catholics, and, of course, Jews, Muslims, and atheists. Even Baptists and Quakers were barred from public office and regularly jailed for unlicensed preaching. Although Blackstone believed “all persecution