This policy bulletin is extracted from Laws Affecting Small Business: Licensing by Gary Moore & Eustace Davie, one of a series of booklets compiled by the FMF in 1997. It is republished today in light of Minister Rob Davies’ intentions to reintroduce business licensing and all the unintended consequences that go with it. The entire text can be read here.
INTRODUCTION
Transformation of the small business environment in most areas of the country was ushered in by the implementation of the Businesses Act, 1991. Small businesses, relieved of licensing requirements, were able to respond rapidly to perceived consumer demand. The benefits of the reduced requirements should be extended immediately to all areas of the country, including the former homelands.
Discretionary awarding of licences has a long history. The exclusive licences granted to South Africa’s state industries, for instance, are the equivalent of the monopoly privileges granted by medieval kings. Just as removal of the medieval restrictive licensing was a necessary precursor to the Industrial Revolution, repeal of all unnecessary licensing in South Africa is a prerequisite to rapid economic growth.
The Free Market Foundation of Southern Africa (FMF), has campaigned for over twenty years for a more just dispensation for small business. Accordingly, the FMF was asked by the Friedrich-Naumann-Stiftung to identify the laws that are creating the most serious problems and to make suggestions for reform. Authors were commissioned to write on various issues and theLaws Affecting Small Businessseries is the result.
In preparing the booklets in the series, the authors have had pictures of real people in their minds – people whose lives are harder because legislation does not allow them to work and prosper. The purpose of this series is to help all those who are grappling with frustrating red tape, unnecessary costs, unhelpful government officials, and in some cases, injustice, in their pursuit of an honest living.
LICENSING–SYNOPSIS
Problems
Licensing laws protect existing businesses by preventing new entrepreneurs from entering into the economy and competing with them. In the past, white-dominated licensing authorities often found some pretext for refusing business licences to persons of colour. Group areas legislation was later introduced to achieve this result more effectively.
Licensing laws reduce productivity and impose financial costs and administrative burdens on small businesses. Ordinary economic activities are criminalised and opportunities are created for corruption. Although licensing laws relating to many different types of business have been repealed, the old laws still apply in certain former homeland areas. A wide range of businesses also still require a licence in South Africa. A few licensing laws allow licensing authorities to decide who is or is not suitable to be granted a licence, and disqualify applicants with criminal records. Some laws create monopolies by permitting only one supplier, others allow licences to be refused “in the public interest”, and a few expressly empower the authorities to discourage competition. Legislation often requires high qualifications or standards. Government enterprises are frequently exempted from the obligation to have a licence. Licensing laws subject business people to policing by their competitors.
Recommendations
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Repeal trade licensing laws in former homelands.
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All licensing laws should be repealed.
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Licensing laws should entitle applicants to licences automatically, unless they will clearly violate essential health and safety laws.
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No new licensing laws should be introduced unless strictly necessary.
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Repeal all licensing laws that permit only one supplier and create a monopoly.
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No licensing law should require that an applicant must be suitable, or fit and proper.
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Licensing laws should not disqualify applicants who have prior convictions.
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Licensing authorities should not have the power to refuse a licence in the public interest.
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Licensing laws should not authorise the discouraging of competition.
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There should be no special requirements for individuals or premises.
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There should be no exemptions for government-owned businesses.
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Licensed practitioners should not be disciplined by people in the same business field.
AUTHORS Gary Moore and Eustace Davie. This Policy Bulletin may be republished without prior consent but with acknowledgement to the authors. The views expressed in the article are the authors' and are not necessarily shared by the members of the Foundation.