New Orleans Restaurants Under Attack

The headline practically screamed: “30 New Orleans area restaurants fail health inspection, some for bugs or dirty kitchens.” Undoubtedly, many people in the Crescent City as a result reduced their take outs from these eateries, several of them world famous, and also decreased eating out in them. If so, they did so in favor of grocery stores, which now seemed relatively more reliable, health-wise. This might be somewhat of an exaggeration, since the story allowed that “… more than 16 … don’t have food safety certificates to ensure their kitchens meet health standards.” As far as we know, they were perfectly clean, but merely lacked proper government certification thereof. Should the local citizenry be worried?

The more discerning of us have to be forgiven for asking: Who do you trust more: the restaurants themselves, or the government health inspectors? The former can lose money from dirtiness, the latter cannot, at least not, personally, for failing to make accurate assessments.

What is the solution to this conundrum? The course of action emanating from this present quarter is to substitute private certification agencies for the ones perpetrated by government. Is this the ravings of a radical free market advocate such as myself? Is this a mirage, something just plain crazy that can never be implemented?  Yes and no. As to the former, this appellation certainly fits me. I hold an endowed chair in free enterprise economics at a local university. As to the latter, it is no concoction in my fevered brain. Rather, capitalist certification agencies are to be found all throughout the modern economy. Let us count some of the ways.

But, before I do, let me explain the difference between licensing and certification. In both cases, a test must be passed. But with the former, if you do not pass the exam, you may not legally engage in the industry. For example, if you fail the bar exam, you cannot work as a lawyer. If you do not pass the medical examination, and worked in the capacity of a physician anyway, you are a criminal and can be incarcerated. In sharp contrast, if you do not score high enough in the exam for Certified Public Accountant, you can still keep financial books for your clients; it would only be illegal to pass yourself off as a CPA.

Where else besides accounting is certification, not licensing, in operation? One aspect is brand names. McDonalds, Walmart, Microsoft, Toyota, and thousands of other companies large and small, stand by their wares and offerings. They are in effect insuring their customers that what they purchase from them is of a certain quality.

Another example is testing laboratories. They are not at all well known to the general public, but are widely used in such industries as acoustics and vibration, biological, electrical, forensic services, geotechnical and mechanical testing. The most famous of these is Underwriters Laboratories. Others include Tuv Sud, Enviropass, Intertek, MetLabs, Curtis-Straus, F2Labs, Dayton T. Brown, NCEE Labs and Applied Technical Services. Industrial chemists, engineers, technicians, etc., are fully aware of these and the many more that comprise this industry.

A third subset is far more well known: Consumer Reports, the Better Business Bureau, and more recently, Yelp warn buyers of inferior products. For finance and investments the big three are Moody’s, Fitch and Standard and Poor. The U.S. News and World Report, a private entity, rates, that is, certifies, universities. (There has been of late a bit of a rebellion against this organization; evidently campus leaders do not much appreciate being assessed by a private corporation; they would rather leave the matter to organizations such as the Association to Advance Collegiate Schools of Business).

Milton Friedman, in the brilliant chapter nine of his book Capitalism and Freedom advocated that certification replace licensing all throughout the economy. Courageously, he took on even the sacred cow often bruited about in favor of this form of quality assurance, medicine. The American Medical Association insists that their licensing exams be given in English. All too many doctors who functioned ably abroad are not able to pass, even though their skills would pass muster if tested in their native languages. The AMA reckons in the absence of unconscious patients, those who speak the same foreign language as the doctor, and the possibility of translation. What they are really up to, of course, is restricting entry, reducing competition, and keeping their compensation elevated.

The next time you hear that a private restaurant has not passed the review of a government agency, do not blithely assume there is something wrong with the former. It may well be due to the failure of the latter.


Originally published: https://www.econlib.org/new-orleans-restaurants-under-attack/