Most Americans are familiar with the “cheesehead”-the garish yellow/orange wedge-shaped foam hat that Packers fans don every football season. Not only is it a sports icon, but it’s also an emblem of state pride. The term “cheesehead,” originally used derisively by rival Illinois fans, has been embraced by Wisconsinites who are proud of their state and its cheese-making tradition. Ralph Bruno, inspired by this sentiment, came up with the idea for the cheesehead while reupholstering his mother’s couch. He cut the leftover foam into a wedge-shaped hat, painted it yellow, and wore it to a 1987 Brewers-White Sox game. According to Bruno, “I just had to put something on my head that said, ‘Yeah, I am a Cheesehead.'” Others clearly felt the same way as they snapped up his homemade creations which he began selling out of trash bags at games. Eventually, he started his own business to manufacture cheeseheads and the rest is history. To imagine America without the “cheesehead” is to imagine a place that is a little less quirky and innovative; a little more boring and sterile. But that is exactly the world we would live in had Bruno been stymied by a “certificate of necessity” law or other such onerous licensing requirement that in so many other industries prevent untold numbers of entrepreneurs from pursuing their business dreams.
A “certificate of necessity” or “certificate of need” law requires someone wishing to enter an industry to first demonstrate a public necessity for a new business. Sometimes, these laws even allow established businesses to object to applications for new licenses. Imagine what would have happened had Bruno been required to obtain a certificate of necessity before marketing his idea. And imagine further that obtaining such a certificate required him to prove the existence of a public necessity for the product before being able to produce it. According to Bruno, developing the cheesehead was “like charting new land” because “there was nothing like that out there.” So how could he have demonstrated a public necessity for his product when nothing like it existed?
Unfortunately, not only do these types of laws prevent new ideas from becoming products, they also block consumer access to essential services, including healthcare. On the Hawaiian Island of Maui, for example, development of a private hospital was held up for years because a state agency refused to issue a certificate of need. Even though the island’s only existing, state-run hospital was too small to care for the island’s residents and visitors, the agency denied approval because a new hospital would negatively impact the existing hospital’s business. A free society should not tolerate such blatant, government-mandated economic protectionism. As PLF attorney Timothy Sandefur explains in his recently-published law review article,
these laws bar entrepreneurial opportunity, stifle the creativity and industry of those who might otherwise be productive innovators in our society, and lead to bitterness and resentment against the hypocrisy of a nation that claims to care about economic opportunity, social mobility, and the “natural aristocracy” of “virtue and talents,” and which rewards merit instead of political influence.
As Sandefur and others also point out, it is difficult to measure the damage that these protectionist regulatory schemes cause. “It is impossible to assess the economic costs that these restrictions impose, since they are what economists call ‘unseen’: they take the form of the countless businesses that nobody ever starts, the productivity that is never begun, the wealth that is never created.” It can therefore be hard to convince people that business licensing schemes are harmful. It is like asking someone to imagine a world in which their favorite product or business does not exist because it was never created in the first place. In other words, it is like trying to imagine an America without the cheesehead.
Thankfully, the cheesehead exists in our world as the result of one man being able to pursue an idea without government interference. But it’s impossible to imagine the many other products and services-both whimsical and vital-that consumers will never see because certificate of necessity laws prevent them from ever reaching the market.