Tuesday, August 25, 2009

The Regulatory Protection Racket

Charles Hugh Smith publishes an anecdote from a correspondent who tried vainly to start a small business in a Pacific Northwest town:

A few years ago my wife, 2 kids, 3 dogs, 1 cat, 2 gerbils and I moved to a picturesque small town on the Pacific Coast with a large historic district where my wife had a job offer at the local hospital.

I found work as a chef at the population center 1 hour+ commute each way by car, ferry and shoe. After a couple of years of 10-12 hour days plus the commute I was getting burned out. So when the new owner of a local boutique hotel asked for proposals for a restaurant to replace the failing "Gifte Shoppe" in his ground floor commercial space, I jumped on it. We shook hands on a sweetheart deal lease-wise as long as he did not have to contribute to any build-out costs.

That's when the fun began.

I sketched some plans and had them drawn up by an architect ($1000).

I submitted them for review to the County building Dept. ($300).

Everything was OK, except for the bathrooms. They were not ADA compliant. Newly built bathrooms must have a 5' radius turning space for a wheelchair. No problem. I tried every configuration I could think of to accomodate the larger bathroom space without losing seating which would mean losing revenue. No luck. I would have to eat into my storage space and replace it with a separate exterior walk-in cooler($5,000). I would also have to reduce the dining room space slightly so I had to plan on banquettes along the exterior wall to retain the same number of seats (banquettes vs. separate stand alone tables ($5,000) Revised plans ($150). Re-review ($100)

Next came the Utility Dept. It seems the water main was insufficient even for the current use, a 24 suite hotel, and would need to be replaced ($10,000).

Along comes the Historical Preservation Society, a purely advisory group of starched collar, pince nez wearing fuddy-duddies (well, not literally) to offer their "better take it or else" advice, or maybe lose the Historic Status tax break for the hotel.

It seems that the mushroom for the kitchen exhaust fan would be visible from the street, so could I please relocate it to the rear of the building? Pretty please? Extra ducting and more powerful fan ($5,000).

Hello Fire Dept! My plans showed a 40 seat dining room, 2 restrooms , a microscopic office, and a kitchen. My full staffing during tourist season was 4 servers, 1 dishwasher and 1 seasonal cook-total occupancy 47, myself included.

The Fire Inspector said the space could accomodate 59. "But I only have 40 seats. I want luxurious space around the tables." I pleaded. "No. It goes by square footage. 48 seats, 4 servers, 3 cooks,one dishwasher, 1 person in the office and 2 people in the restrooms." "Why would I need 4 cooks for 40 seats when I am capable of doing that alone? And if the cooks are cooking, the servers are serving, the officer is officing, the diners are dining, then who the H#$% is in the bathrooms?"

"Square footage. Code!" And therefore it went from Class B to Class A, requiring a sprinkler system for the dining room and a third exit ($10,000) in addition to the existing front door and the back kitchen door. It would have to be punched through the side wall and have a lit EXIT sign.

Could it be behind the screen shielding the patrons from viewing the inside of the bathrooms every time the door opened? Oh, no! It might not be visible. The door would have to be located where 4 guests at the banquette plus their opposite companions were seated-loss of 20% of seating unless I squeezed them into smaller tables destroying the whole planned luxurious ambience.

Pro Forma:

$250K sales.
$75K Food and Beverage purchases
$75K Labor cost
$75K Expenses
$25K net before taxes.
Result of above experience=Fugget Aboud It!!!

Loss to community-$100K income plus tips +$20K Sales tax.


Smith adds comments of his own, which boil down to a plea for bureaucratic reform. Like all liberals, he believes that governments have the right and duty to extort obedience from property owners. He bemoans the damage inflicted by the "regulatory" protection racket, but assumes that it must continue perpetually, albeit in a low-intensity, "nurturing" mode:

Codes and regs which make sense as individual ideas become straitjackets when layered on top of one another with no integration via a common-sense, cost-benefit, marginal-value analysis. The choice is clear: either nurture small business and enable its survival or cities, towns, counties and states will see their tax revenues drop in a death-spiral: the more they drop, the higher the taxes they place on surviving businesses, which then speeds their decline into insolvency, which further lowers tax revenue, and so on.

But coercive government is incapable of cost-benefit, marginal-value analysis. Moreover, officials cannot see property management from an owner's perspective, because they do not personally bear the costs of the obstacles and failures they force upon him. Were there some voodoo spell that citizens could inflict on bureaucrats to make them experience even a portion of the frustration, poverty, and shame suffered by all those who are pronounced "not up to code", we would see a wondrous decline in harassment and plunder. In the absence of voodoo, and given the unwillingness of Federal, state, and local officials to repeal their protection rackets, we will see the "death spiral" of governments declining in tandem with the communities they've gutted. And businesses that manage to start up will do so "off the books", in a dodgy but life-sustaining black market economy.

1 comment:

  1. The so-called "black market" is the substance of any future hope of economic recovery. You have also captured the very essence of bureaucratic inaccountability, completely opposite of Lincoln's magic lie: "government of the people, by the people, for the people." It didn't exist then, and it never has.

    ReplyDelete