Criminalizing the Informal Economy through Cost Plus Regulations

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Discussion by Kevin Carson:

"The main function of zoning, licensing, local "health" regulations, etc., is to protect conventional, high-overhead businesses against competition from the informal and household sector.

Informal and household production is potentially revolutionary, because it follows a low-overhead business model of producing with "spare cycles" of ordinary capital goods most people already own anyway. If I operate a microbakery out of my home using my ordinary kitchen oven, or an unlicensed cab service using just my car and cell phone, or a home microbrewery or the like, the required capital outlays are almost nonexistent. So the minimum amount of business I need to carry overhead expenses is likewise almost nonexistent. I can afford to shift incrementally from wage labor to self-employment, and ride out periods of slow business in my home microbusiness, with virtually no risk at all.

All the regulations passed for the "public safety" have the primary effect of criminalizing this business model. They impose mandatory minimum levels of overhead, so that the only way to service the overhead is to engage in large-batch production. If I have to buy an industrial-sized oven, dishwasher, and fridge to sell pies, and get an expensive state license, then I can't afford to enter the market unless I can do it on a large scale, and do so in confidence of finding enough business to employ me on a large scale.

Another good example is the effect of CPSIA on small apparel manufacturers. The normal business model of a small manufacturer is this: come up with a couple dozen or so designs, see which ones sell, and switch from one design to another in response to orders on a just-in-time basis. The CPSIA, by requiring expensive tests that cost hundreds of dollars for each separate product, criminalizes such small-batch production. The only way to stay in business is to produce in long enough runs to amortize the cost of the testing for each product. Again, either start out big or don't even try.

Ditto attempts by licensed retailers to sic the state on food-buying clubs run out of people's homes, etc.

On a national level, "intellectual property" [sic] law has the same effect. In publishing, music, and software, until the late 20th century the main structural basis for the large corporation's existence was the enormous capital outlay (hundreds of thousands of dollars or more) required to enter the market. The desktop revolution has reduced the basic item of capital equipment needed to engage in production in these industries to a few hundred or thousand $$; and the network revolution made possible by the Internet not enables peer networks to organize production on an efficiency rivaling that of the big corporate producers, but reduces the marginal cost of reproduction to zero. So with the cost of physical capital required to enter the market approaching zero, artificial property rights are the main structural bulwark supporting the old corporate dinosaurs.

We live in what Paul Goodman called the "kingdom of cost-plus": a society in which the vast majority of commodity prices consists of subsidized waste, mandated unnecessary overhead, and embedded rents on artificial property rights." (p2p research list, April 2009)

More Information

  1. Organization Theory: A Libertarian Perspective [1]