Right To Work 2.0: A Pro-Growth Platform For The 21st Century

Derek Khanna Technology Activist
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Right to Work legislation is working across the country and now is the time to build upon that success. With Right to Work legislation, employees cannot be forced to join a union. If a worker chooses to keep their money, they can. For unions, they must prove their worth to their members. It’s common sense and effective policy.

Now is the time to embrace the next iteration, Right to Work 2.0. Today Lincoln Labs is releasing our new report “Lobbying for the Future” on how to grow the economy that presents a novel legislative solution for Right to Work 2.0:

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Today, most sectors of the economy are not open to competition. As one example, occupational restricts roughly 25 percent of U.S. occupations, a drastic increase from 5 percent in the 1950’s. These occupational license requirements are not merely for doctors or lawyers, but apply to florists, cosmetologists, tour guides, funeral homes, and nearly every other field. These requirements often serve no legitimate purpose other than cronyism. They don’t just hinder new florists from competing, they stifle new and disruptive market models across the economy, where robust economic growth emanates. In markets with occupational licenses, there is a lack of creative destruction, the process that drives innovation, because old firms and industries have no incentive to evolve and compete.

Innovation thrives with an even playing field and low barriers to entry, where anyone with a good idea can launch a company with a new market model and succeed on the merits of the idea, rather than permission from the government or incumbent firms. In Silicon Valley, they have a simple phrase for this concept: permissionless innovation.

The Internet’s dynamic growth is a clear example of how much innovation and growth can occur with permissionless innovation. Did Mark Zuckerberg ask anyone to launch Facebook in his dorm room at Harvard? Why do we require florists to ask permission from the government and incumbent floral companies? In Louisiana passage rate of the florist exam is 36 percent, the passage rate of the bar exam is 61.5 percent.

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At Milton Friedman explains licensure is “essentially the medieval guild kind of regulation” where “the state assigns power to members of the profession.” He explains that these “measures … almost inevitably becomes a tool in the hands of a special producer group to obtain a monopoly position at the expense of the rest of the public.”

The problems are much larger than occupational licenses, however. Across the economy, myriad state and federal laws and regulations stifle legitimate business for no logical reason. Until recently it was illegal for a car manufacturer to sell directly to consumers in dozens of states; it still is heavily regulated and illegal in many. The last new American car company in the United States was Chrysler in 1925 (then Tesla in 2008) and this is lack of new U.S. entrants is a direct result of car dealership laws that serve no rational purpose. Americans have had limited innovation over 90 years of an oligopoly in the U.S. car market reinforced by government regulation.

Today, Uber, Lyft, and Sidecar face a mountain of laws and regulations that make it illegal for them to operate in many markets, with no logical explanation other than cronyism to protect the taxi cartel. Similarly preposterous regulations make it illegal for a company to offer direct to consumer DNA testing. While DNA testing costs between $100-$1000, few American get their full DNA sequenced today. Meanwhile, other countries are moving ahead, China has consolidated much of the DNA testing market.

What is the solution? We’ve elected free-market oriented politicians but problems persist, and both parties have an interest in keeping the status quo. The political class is unwilling or unable to create solutions or dismantle long-standing regulatory schemes. Therefore, we present a modest proposal: Instead of taking on thousands, perhaps even millions of rules, regulations, and laws one by one, let’s create a new statute that knocks them out permanently.

Our solution is Right to Work 2.0: If an individual wants to compete in a marketplace, they should be able to do so without gaining permission from the government or incumbent firms. To be clear, however, this is not a no-regulation approach. Regulations can be upheld, but the government has the burden to prove which are necessary and proper for a healthy and competitive marketplace.

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Today, rules will be upheld in court as long as the government can prove a “rational basis” to support the law; in practice upholding just about all regulation. By contrast, legislation that affects “fundamental rights,” such as freedom of religion and speech, the government must establish that the measure is “necessary for a compelling government interest” and that it is “narrowly tailored” to that interest. Most ridiculous laws to stifle speech or hinder freedom of religion are struck down as a result, while ridiculous laws that stifle business and economic opportunity are upheld.

Such a result is bad policy and inconsistent with the original meaning of the Constitution. The Founders endeavored to protect economic liberty in the Constitution through the Privileges and Immunities Clause, the Ninth Amendment. Later the 14th Amendment’s Privileges or Immunities Clause would also protect economic liberty. Legislation to require strict scrutiny requirements would be the most significant change in economic policy since President Reagan cut taxes from 70 percent to 28 percent. This proposal is also easy to implement and relatively easy for the courts to enforce. This small change in law would begin to drain the swamp that is strangling innovation in this country – it would unleash thousands of entrepreneurs in fields that are currently off-limits for innovation. The impact would be nothing short of transformative.

Real “right to work” must include a right to work without rules designed to prevent new market entry – this is Right to Work 2.0. Right to Work 2.0 is common sense: we want innovators to launch businesses without permission from the government or incumbent firms because this will foster disruptive innovation and new market models regulators could never have predicted. If we want to grow our economy, we must foster permissionless innovation across the economy.

Derek Khanna is co-author of Lincoln Lab’s new report “Lobbying for the Future.”