|New grocer law spells trouble for city business - December 28, 2005|
|By Robert Krol and Shirley Svorny, Guest
LA Daily News
|The Los Angeles City Council and Mayor Antonio
Villaraigosa might as well put up a banner in Los Angeles that says,
"Don't do business here."
Last week, the council passed an ordinance that would put an enormous burden on L.A. supermarkets. The law requires that whenever stores larger than 15,000 square feet are sold, the new owners must keep the old employees for at least 90 days. Then, if there are to be any layoffs, workers must first be evaluated and/or offered other positions. Seniority trumps skills and productivity in terms of which employees get to stay.
With this ordinance, the city has dictated rules of employment for a whole industry.
If that makes sense, then why not apply the idea to every business in Los Angeles? Because clearly it would discourage business growth and investment. By passing this ordinance, the council has in one fell swoop micro-managed the grocery industry, bowed to labor demands, expropriated money from stockholders and sent a signal to the world that L.A. government is willing to intrude on basic business decisions.
It's a Christmas gift to the grocery unions, and coal in its stocking for the future of Los Angeles.
Raising business costs is just one more tax in a city already known for its high business-tax rates. Efforts to micro-manage send the message to business owners that at any time they may be capriciously attacked and their assets taken by means of regulatory policy. The end result is fewer jobs, and not only higher grocery costs, but higher costs across the board as businesses react to the higher risk of doing business in L.A.
The assumption behind this ordinance is that businesses need to be monitored and controlled by government. This is a popular view, but it presumes that government oversight improves business outcomes. On the contrary, regulation of this sort and the resulting uncertainty for business decision-makers discourage investment and job creation.
The City Council seems oblivious to the fact that we can't get a grocery story to open in poor parts of Los Angeles. Making business harder on grocers is only going to exacerbate this problem. The council has put union interests ahead of the well-being of city and, especially, inner-city residents.
The union may be gaining benefits for a small group of existing workers, but the long-run consequence will be that grocery chains will not flourish in Los Angeles. The expansion of grocery chains will occur outside the city limits, and every industry that thinks it might be the next target for regulatory excess will react similarly.
Only Councilmen Greig Smith and Bernard Parks voted against this ordinance. For that, they should be commended. But what about their council colleagues? Do the rest of the council's members not understand the consequences of these types of laws, or have they just had too much eggnog?
Councilman Bill Rosendahl was quoted as saying that the passage of this ordinance indicates that "people matter." Implicit in his statement is a fundamental misunderstanding of what acquisitions are all about. The main reason a firm would seek to acquire another firm is to reorganize it in such a way as to increase profitability. The expected profitability motivates these actions. Without such efforts companies decline and jobs are lost.
This understanding of the big picture is crucial to the design of effective public policies involving business and employment.
Robert Krol and Shirley Svorny are professors of economics at California State University, Northridge.