Detroit's 'Operation Compliance' Shows the Dangers of Too Many Regulations

Announced early this year, Detroit's "Operation Compliance" shut down two auto repair shots, two tire stores, a wood pallet shop and a junk yard in its first week.

The official concern of the city is that these "illegal" businesses cause "blight and crime." But as a city official explained to ABC7-WXYZ: "There are revenues involved. If you don't go through the proper process we end up missing a lot of money."

Detroit reportedly wants to shut down 20 businesses each week and more than 900 have either been closed or are in the process so far.

The press release announcing the program in January said: "An example of an illegal business is an appliance resale shop operating in an area that is zoned for retail."

Is this really what a bankrupt, violent crime-ridden city should be focused on?

A new video from Reason TV (see below), featuring Mackinac Center for Public Policy Fiscal Policy Director Michael LaFaive, has interviews with small business owners about the program.

An auto shop owner said he would rather the city focus on the basics of governance and "clean up the streets." A car wash owner said he wants Detroit to focus on cutting the grass instead of harassing him over having signs outside the building. A restaurant/bar owner said it took him three years to get a permit for an outdoor patio.

The city should make it substantially easier for business owners to operate, which likely would cut down on illegal and blighted properties, boost the economy and allow public workers to focus on the basics of governing.

In his seminal work, "The Other Path: The Invisible Revolution in the Third World," Peruvian economist Hernando de Soto explains how too many regulations drive businesses underground, encouraging people to turn to the black market economy. De Soto points out that rather than making things safer, adding too many obstacles to commerce disrupts the rule of law since officials are spread too thin to focus on the important things.

An extreme case of this is the case study of Chile versus Haiti in the midst of tragedy a few years ago.

In early 2010, earthquakes hit both countries. In Haiti, a 7.0 quake in January killed hundreds of thousands of people. A few months later, an 8.8 quake, which, according to the Richter magnitude scale is approximately 500 times larger than what decimated Haiti, struck Chile. The final death toll there was 515.

As Bret Stephens noted in the Wall Street Journal at the time, wealthy countries bolstered by a strong economic system can more easily withstand natural disasters:

Chile also has some of the world's strictest building codes. That makes sense for a country that straddles two massive tectonic plates. But having codes is one thing, enforcing them is another. The quality and consistency of enforcement is typically correlated to the wealth of nations. The poorer the country, the likelier people are to scrimp on rebar, or use poor quality concrete, or lie about compliance. In the Sichuan (China) earthquake of 2008, thousands of children were buried under schools also built according to code.

As LaFaive points out in the video: "Accidentally, the city has created sort of an anarchistic culture in the city, where many entrepreneurs [and] smaller retailers and entrepreneurs simply forgo getting the required permits."

In short, having too many regulations is the same as having no regulations. Until Detroit corrects that, the city will have a difficult time climbing out of its hole.

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(Editor's note: This story has been slightly edited since its original posting.)