The Institute for Justice has filed a new lawsuit in Clayton County, Georgia over a controversial decision by the county’s Board of Commissioners to deny permission for a hair salon in Jonesboro to open.
Plaintiff Khalilah Few was hoping to expand her successful natural hair salon business by moving into a bigger location, but the county denied her application for a Conditional Use Permit (CUP) at her new location — which is required for hair salons — citing a “saturation” of similar businesses already existing in the area. Unfortunately, Khalilah assumed the CUP process would be a mere formality with no risk of being denied so by the time the decision was made she had already signed a two-year lease for the location and invested tens of thousands of dollars in rent and renovations into the property.
“Government shouldn’t be able to stop legitimate businesses from opening simply because other businesses in the area might also offer similar services,” said IJ Attorney Jessica Bigbie. “This is America, where the government doesn’t get to decide who is and who isn’t able to compete in an industry. Khalilah has every right to open her business.”
“I did everything I was asked and was even told I had a wonderful vision for my business and to help the community,” said Khalilah. “To hear that and still be denied is devastating.”
The decision came down in a July 15 hearing, which was Khalilah’s last chance to make the case for her business after a long and bureaucratic process. In her presentation before the decision, Khalilah explained how her business, Creative Crowns Collective, would be an asset to the community, going far beyond simply providing jobs and a hair styling service. “We are a community business, not just a salon” she explained. “We’re offering more than a braid studio; we’re offering a platform for empowerment.”
She went on to discuss how the business would help with youth education and community engagement through a variety of initiatives, such as hair care workshops for parents. She also highlighted how the business was aligned with the Clayton County Strategic Plan and with the stated priorities of Commissioner Davis, who is opposed to the business opening in this location.
Despite her efforts, and despite minimal opposition from community members, Commissioner Davis still moved to deny the CUP, a motion which was approved. “I want to say thank you,” he said to Khalilah. “You did a fabulous job. And you’re right, [the business plan] does align. Unfortunately…we’re going, this is just in the wrong area. And we’ve got to begin to grow Clayton County smartly. I think you have a fabulous business, you have a fabulous personality, and I love what you bring, and you actually hurt my heart right now, but we’ve got to deny [the permit].”
A few moments later, the decision was made — a decision that is now set to come under intense judicial scrutiny.
Central Planning and the Knowledge Problem
Khalilah Few’s story raises a number of legal and ethical questions about the authority of county commissions, questions which the Institute for Justice is diligently pursuing. But it also raises an interesting economic question: how do the commissioners know what the optimal number of hair salons in this region is?
The idea that there are already enough hair salons in that area comes from a June 30 “staff report” from the county, which recommended denial of the CUP application. “[T]he request does not align with the 2039 Comprehensive Plan,” the report states. “The future land use is Mixed-use Industrial Commercial of the Business Corridor Overlay. There are similar existing uses (three) in the immediate area located along Main Street and the surrounding area. The goal is to eliminate saturation of the same use and seek uses that encourage the highest and best use of the property.” The three salons presented as “similar existing uses” were within a 1 to 5 mile radius of the proposed location.
But how do these individuals know that the “saturation” point for hair salons in this area is three and not fifteen or twenty — or one for that matter? Was it a gut feeling? Was a study conducted on this? What would even be the methodology of such a study?
It’s hard to escape the feeling that this number is just arbitrary. There is simply no way that anyone knows enough about all the relevant factors to say for certain which businesses are needed in which amounts.
Of course, having a Comprehensive Plan sounds scientific and sophisticated. And it’s tempting to say we need some kind of centralized planning to make sure we get the right balance of services in a given region. But as Nobel Prize-winning economist F. A. Hayek famously pointed out, this is the wrong way of thinking about the economic problem.
In his highly cited 1945 paper The Use of Knowledge in Society, published 80 years ago this month, Hayek took direct aim at the proponents of centrally planning the economy. “This is not a dispute about whether planning is to be done or not,” he wrote. “It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.” Hayek was primarily contrasting pure socialism (which we might call “total” central planning) with an unhampered market, but his argument also applies to the softer versions of central planning that we find in interventionist economies, such as zoning, which is what we are dealing with in this story.
Hayek’s main point is that central planning fails to provide an efficient allocation of resources because it can’t make good use of dispersed local knowledge, which he calls “the knowledge of the particular circumstances of time and place.” The decentralized market process, on the other hand, is capable of taking this knowledge into account, and as a result, yields a far better outcome.
“To know of and put to use a machine not fully employed, or somebody’s skill which could be better utilized, or to be aware of a surplus stock which can be drawn upon during an interruption of supplies, is socially quite as useful as the knowledge of better alternative techniques,” Hayek writes.
Consider the knowledge that is relevant to the economy of Jonesboro. Khalilah Few knows about the demand for hair styling in the area, about the number of workers available to work for her and their skill levels. A local developer, meanwhile, might know about the demand for residential areas, and might bid up the price of Khalilah’s land based on that knowledge.
Other business owners in the area also have specialized knowledge about their own fields — about the ease of transitioning from one production process to another, the opportunity for economies of scale in their industry, the time it would take to relocate their business and the costs and benefits of doing so; what crops grow well in which kinds of soil and where that soil is located, and so on. Local residents, meanwhile, know about their specific needs and wants, about the culture and norms of the community, what challenges and opportunities their kids are facing, and what resources would be the most helpful for community development.
All of this knowledge and more is relevant to the question of how to best develop Clayton County. But as Hayek points out, no one person has or could ever hope to acquire all of this knowledge:
If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization.
As mentioned above, the decentralized system Hayek recommends is the free market. In addition to the benefit of using local knowledge, he highlights that free market prices allow individuals to communicate pertinent economic information with each other, leading to a high degree of coordination among their various plans. It is this naturally occurring coordination of individual plans that Hayek in other works called a “spontaneous order,” a concept which has become central to our understanding of the economy. The alternative to this, to borrow a phrase from Hayek’s mentor Mises, is “planned chaos.”
Here’s another way of stating Hayek’s point: the “smartest” way to develop an economy is to allow decentralized social processes to do their thing — which means allowing entrepreneurs like Khalilah Few to run their business where they see fit. The idea that a central board needs to impose a “Comprehensive Plan” to optimize development is about eight decades behind on economic theory. The relevant knowledge is simply too dispersed for any one person or group to mastermind an economy, and trying to do so only disrupts the spontaneous order of the free market.
As Hayek famously put it, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”