Fifth Circuit: Houston taxicab scheme is not unconstitutional protectionism

Author: Timothy Sandefur

The Fifth Circuit Court of Appeals today upheld Houston’s scheme for distributing new taxicab licenses, against a challenge brought by a group of taxicab operators who argued that it unconstitutionally privileged large, established firms against competition from new companies. PLF filed this brief in support of the plaintiffs.

Sadly, in upholding the law, the court took a narrow view of the important precedent, Craigmiles v. Giles, the Sixth Circuit Court of Appeals decision that held that states may not use their licensing laws to protect established firms against legitimate competition. The court admitted that the Houston ordinance privileges larger taxi companies, but that was okay because “the larger the taxi company, the more likely it is to offer a broader range of services that better serve consumer needs.” But this rule severely undermines the protections for equal treatment in the Constitution.

The legislature can always give out economic favors to established, wealthy, well-connected groups on the grounds that they’re better suited to serve consumer needs—since that’s just what it means to be established, wealthy, and well-connected! If the state can pick winners and give them privileges, simply because they’re already winners, well then the constitution’s protections for little-known entrepreneurs, who lack that kind of political influence, will be crippled.

Talk about the rich getting richer! Court decisions that weaken protections for economic liberty are precisely why the rich get richer and bar the door against those who hope some day for the chance to get rich.

Remarkably, the court also held that there was “no reason to believe that consumers will suffer harm” by giving preferences to a government-established oligopoly, and that Craigmiles only “confirm[s] that naked economic preferences are impermissible to the extent that they harm consumers.” Craigmiles, however, contains little language about the harm to consumers; that decision rightly noted that all restrictions on legitimate economic competition harm consumers, in ways that can never really be known for sure, and that the Constitution protects us not only against unequal treatment that hurts us directly—it protects our right to equal treatment and due process of law.

While it’s refreshing to see the court adopt the Craigmiles rule—as the Ninth Circuit did in Merrifield v. Lockyer—it’s frustrating that it simultaneously narrowed that decision in a way that allows government to erect barriers against entrepreneurs. And not just any entrepreneurs, but entrepreneurs who, as I write in The Right to Earn A Living, need protection for their economic freedom most of all.