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The Horrors of Getting Approval for an Ice Cream Parlour in San Francisco

February 5, 2012

The tragedy of the anti-commons is a useful concept for understanding a prevalent type of government failure in both poor and rich countries–excessive permit and licensing requirements. A pervasive multiple licensing system can create an impenetrable conjunctive permission line that even the most energetic cannot overcome. To start a business, to build, to hire, to sell, you need first to convince bureaucrat A and B and C and D and so on. The longer the conjunctive line, the less frequently entrepreneurs enter the market with new products and services. The transaction costs for dealing with each bureaucrat are very high, as is the likelihood that any single one will say no. The upshot is an impoverished society. To take one example, in medieval times, barons who owned parcels of land along the Rhine River collected tolls from each ship that passed by. As a result, few ships sailed down the Rhine.

But why go to medieval Germany or post-communist Russia when here we have a great example from my home town, San Francisco:

The Ice Cream Bar opened Jan. 21 in the Cole Valley neighborhood — an homage to the classic parlors of the 1930s, complete with vintage soda fountain and lunch counter seating. It has become an immediate sensation, packed with both families and the foodie crowd, savoring upscale house-made ice creams and exotic sodas (flavorings include pink peppercorn and tobacco). The shop also employs 14 full- and part-time workers.

But getting it opened wasn’t easy.

“Many times it almost didn’t happen,” said Juliet Pries, the owner, with a cheerful laugh.

Ms. Pries said it took two years to open the restaurant, due largely to the city’s morass of permits, procedures and approvals required to start a small business. While waiting for permission to operate, she still had to pay rent and other costs, going deeper into debt each passing month without knowing for sure if she would ever be allowed to open.

“It’s just a huge risk,” she said, noting that the financing came from family and friends, not a bank. “At several points you wonder if you should just walk away and take the loss.”

Ms. Pries said she had to endure months of runaround and pay a lawyer to determine whether her location (a former grocery, vacant for years) was eligible to become a restaurant. There were permit fees of $20,000; a demand that she create a detailed map of all existing area businesses (the city didn’t have one); and an $11,000 charge just to turn on the water.

The article doesn’t investigate the origins and causes of this morass, but any plausible theory of urban development should figure out ways to dissolve the problem. I’d say it’s a reasonable assumption that we can thank baptists and bootleggers for each required permit. One by one the pebbles collect to thwart the flow of the stream. And the SF city planning commission seems to shrug its shoulders helplessly.

The whole episode in red tape asphyxiation inspired a humorous take on city planning in an Xtranormal skit. Enjoy [HT Boing Boing]:

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3 Comments
  1. Mac permalink
    February 9, 2012 1:10 pm

    “The article doesn’t investigate the origins and causes of this morass”

    Of course not. That would require admitting that it results from SF’s anti-capitalist, left-leaning mindset. My business partner is good friends with his ex-wife who lives in Germany. This story exactly describes her trials trying to open a furniture store in Bonn.

    Examples abound. One of my businesses involves exporting commercial trucks. Russia only allows trucks to be imported which are 36 months old or less. We were puzzled why our Russian customers weren’t interested in a set of very well-priced one-year-old trucks. The answer is taxes. They try to buy the oldest possible trucks — even though shipping delays create big risks — because the taxes skyrocket. In their government’s attempt to seize more money they have created a situation where they instead receive no money at all.

    Some regulation is (probably) always necessary, but the left has turned government intervention and social manipulation through taxation into a fetish.

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