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Business Licensing Bill: An indefensible defence

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

Trade and Industry Minister Rob Davies has taken to the media to defend the business licensing monstrosity he tabled in Parliament in March. He is wrong, on every single point.

Two weeks ago, I wrote at some length and with considerable alarm about the Licensing of Businesses Bill.

This proposed new law would require all businesses, no matter how small, to purchase a business licence from their local municipality. It would appoint an army of civil servants as business licence inspectors, and arm them with expansive powers of interrogation, warrantless search and seizure, on the mere suspicion that a business was being conducted from a premises.

Rob Davies, the responsible minister, has taken to the media to defend his pet piece of central planning. (Warning: that link is behind a limited-access paywall.)

He reiterated the stated purpose of the bill, namely to deal with traders in counterfeit goods, tax-dodgers, and illegal immigrants. Business Day summarised his view thusly: “It was not government’s intention to impose more bureaucratic hurdles on small businesses as claimed.”

They write: “Mr Davies emphasised that the intention of the bill was not to ‘raise the bar’ of bureaucratic regulation for registration as its critics claimed. He pointed out that the proposed system would not be any more onerous than the requirements which the DA-controlled Cape Town city council imposed in terms of the Business Act of 1991 which required all suppliers of foodstuffs (including hawkers), and operators of health and entertainment establishments to [be licensed] … ‘It is not true that in the current situation there are no forms and no regulation,’ he said.”

The article concludes: “Mr Davies said government wanted to ensure that the same standards of regulation applied throughout the country and across all sectors.”

Let’s consider these points. Firstly, the intention is entirely irrelevant. Davies can pave the road with good intentions, but that doesn’t change where it leads. The consequences, intended or otherwise, are what matters. His mere assertion that the intentions are good does not invalidate the Lyndon B Johnson warning cited in my previous column on the subject: “You do not examine legislation in the light of the benefits it will convey if properly administered, but in the light of the wrongs it would do and the harms it would cause if improperly administered.”

The fact of the matter is that this bill will raise the bar of bureaucratic regulation, whether or not this was intended. It will also offer wide scope for abuse by officials to extort bribes and private businesses to badger competitors.

It will create an entirely new layer of bureaucracy, on top of the Companies and Intellectual Property Commission, which is groaning under its own burden of registration under the Companies Act, to document millions of new businesses. It will fail in that aim, of course. It doesn’t even have the handy choke-points that regulations such as the Financial Intelligence Centre Act (Fica) and Regulation of Interception of Communications Act (Rica) enjoy in the form of cellular operators and banks, respectively. There is a reason why South Africa boasts such a large and vibrant informal sector. If small businesses were not put off by more bureaucracy, they would all register as formal companies and VAT payers. That many try to avoid such paperwork won’t change just because they now have an exciting new range of forms from which to choose.

The bill will place additional work on the shoulders of the police, customs officials, traffic officers, health inspectors and sundry other civil servants who will be expected to enforce the new business licences. These public service bodies are already stretched to capacity. While this bill will give them terrifying new tools to enforce compliance – not to mention intimidation, bribery and extortion – it also adds to the administrative burden of their jobs.

Davies is, of course, correct in pointing out that it is false to claim that in the present dispensation, there are no forms and no regulations. But that is a trivial truism, which deliberately misrepresents the claims of his critics.

Nobody said there is no regulation right now. The argument was that the Business Act of 1991 removed a raft of Apartheid-era regulation that gave the state stifling control over businesses and that repealing it and replacing it with a new Licensing of Businesses Act would curtail our newly-won freedom and once again increase the level and cost of regulation.

Besides this straw man, Davies erects an even bigger one, namely that the DA-controlled City of Cape Town requires some sectors, such as food vendors and health services, to be licensed, so it’s clearly okay to do so.

Firstly, appealing to the DA’s policies is both hypocritical and misguided. The DA is hardly the antithesis of the nanny state. That party is sharply divided between classical liberals who openly support economic freedom, and social democrats who prefer a regulatory welfare state. Besides, pointing to the DA’s frequent flirtation with petty fascism is an appeal to authority, not a policy justification. And even if the DA were right, the ANC government claims not to like its economic policies, so cherry-picking its more questionable policies is hardly a convincing political argument. If Davies really wants the entire country run like the City of Cape Town, he should have the courage of his convictions. Let him be brave enough to make an explicit case for turning the country over to the DA, and to campaign for ousting the ANC government that appointed him.

Second, his observations about Cape Town are limited to sectors such as food and health, where public health and safety constitute strong grounds for stricter regulation. You may disagree that even these sectors benefit from government licensing and standards, and I do, but that they are substantively different from industry sectors that do not directly impact the health and safety of consumers is hard to dispute.

For Davies to argue that business licensing is justified in general, on the grounds that it is justifiable in some specific cases, is both disingenuous and dangerous. It is the slippery slope, epitomised.

But having appealed to the DA’s authority and track record, does that party actually support Davies’s proposed bill? Did it thank Davies for acknowledging their superior economic policies, and welcome the ANC’s desire to copy them?

No, as it happens. Geordin Hill-Lewis, the DA’s deputy spokesman on trade and industry, wrote an opinion piece for Business Report, headlined “Licensing bill is a job killer”.

He makes many of the arguments I made in my first column, namely that it is not the purpose of government to control the economy, that it is incapable of doing so where it is in charge, that the bill does not solve any particular problems and that what it seeks to prohibit is already prohibited by law, that it is unenforceable, that it does not further the vision of the National Development Plan, that it will impose costs and bureaucracy on firms that give the lie to the Department of Trade and Industry’s claims of supporting small business, and that South Africa is falling in the rankings of ease of doing business.

One suspects Hill-Lewis will not look to the example of food vendor or health service regulation and agree that any and all regulation is, consequently, desirable by default. There is a reason why not all sectors are governed by the same law and regulation. That some are so governed may be a feature of a well-run, orderly free-market economy, in Davies’s eyes, but it does not justify the extension of regulation to become all-encompassing and standardised. Besides, for Davies to masquerade as a defender of economic freedom is patently perverse. He is a long-standing member of the South African Communist Party, which raises questions about his suitability of overseeing trade and industry in a free country. This bill, and his response to its critics, answers those questions eloquently.

Every single point Davies raised in its defence collapses under even elementary scrutiny. His response is nothing but a web of straw men, appeals to authority, disingenuity, appeals to convention, hypocrisy and misdirection. But then, what can one expect from a communist, for whom the contradiction of thesis and antithesis brings forth any synthesis, as long as it bolsters state power?

In defence of big business, which I speculated might actually go along with a licensing requirement that raises barriers to entry for smaller competitors, both the South African Chamber of Commerce and Industry and Business Unity South Africa have denounced the bill.

In defence of Davies, he responded to the widespread outcry over the bill by extending the deadline for public comment to 30 April 2013. That is, today.

Now, all that is left for him to do is listen to that comment, and withdraw the bill in its entirety. And perhaps to resign, for the good of the country, the success of its trade and industry, and the prosperity and freedom of its people. DM


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