If you think you can’t stand up to government regulations, you have new role models in Laura and Marvin Horne.
The U.S. Supreme Court has ruled 8-1 that the government can no longer seize a percentage of raisin growers’ crops as part of a marketing plan cooked up in the Depression to help artificially raise the price of raisins.
The ruling cripples one of the oddest government regulations on the books. For decades, raisin growers were told how much of their product they were allowed to sell in the marketplace. That’s not unusual for agriculture, where some yields are tightly controlled to ensure that there is a scarcity of product to drive up the price. But, with raisins, growers had to turn over the crop they weren’t permitted to sell directly to the government, without compensation. The government, in turn, used the raisins for food-aid programs, both here and abroad.
On its surface, the practice seems to clearly run afoul of the Fifth Amendment, which forbids the government from taking private property without compensation. But the government has argued it is doing this all for the good of the growers, since it keeps prices – and, therefore, profits – high.
Enter Laura and Marvin. They grew Thompson seedless grapes on their Kerman, Calif., vineyard specifically to make raisins, yet balked at what they saw as state-sponsored theft. Like most business owners and entrepreneurs, they first tackled the regulations the old-fashioned way: by trying to get around them. Technically, the Hornes became raisin handlers – an important regulatory distinction – but the Department of Agriculture wasn’t buying it and hit the Hornes with a $700,000 fine.
So the Hornes took their case to the courts. That culminated with Monday’s victory.
By fighting, the Hornes – who have been articulate advocates for the free markets – actually helped businesses outside of agriculture. Look first at the government’s position. It simply took someone else’s product for the state’s benefit and decided it didn’t have to compensate the makers since it was all for the “good.” But are higher prices really in the public interest? For one thing, the price hike was artificial, meaning true supply was never matched with demand. It was your basic cartel: What we rail against when OPEC squeezes output of oil, we readily accepted in our raisins. Price controls are never good.
Controlling prices also takes business decisions out of the hands of the business owners. For instance, it is true that a scarcity of product leads to higher prices. But you can also make scads of money selling in bulk, even with a lower price. That’s how many commodity-based businesses work: they make up market-driven price declines through volume. Margins aren’t as good, but you still make a profit – and a good one. Limiting what growers can sell takes the volume-sales route away from them.
Also, what about the consumers? If you agree that the government should inflate the profit of raisins for growers, you are also agreeing that the government should inflate the price of the end product for consumers. Is that the state’s role, to make products more expensive for families?
For those who think this is just about raisins, even the Supreme Court was worried about the implications for all businesses of letting this regulation stand. Justice Samuel Alito, during oral arguments for the case, said raisins are just the beginning. “Could the government say to a manufacturer of cell phones, you can sell cell phones; however, every fifth one you have to give to us?” he asked, according to a transcript of the oral arguments. “Or a manufacturer of cars, you can sell cars in the United States, but every third car you have to give to the – to the United States?”
Some detractors of this case might argue it sets back the ability of the government to help support business. Indeed, the decision comes at a time when the Obama Administration wants to be more active in getting involved in entrepreneurship around the world.
But there are legitimate reasons why state interference in business is a terrible idea for entrepreneurs. Many economists and business owners know that. Ronald Reagan famously summed up the view when he quipped, “The nine most terrifying words in the English language are, ‘I’m from the government, and I’m here to help.’”
In the raisin case, the government clearly thought it was doing the right thing. It wasn’t. It was an insidious kind of market manipulation that was toxic to American business.
And it was all changed by two business owners who believed in something so strongly, they pushed it all the way to the Supreme Court. That’s the true spirit of entrepreneurship, the kind of drive that builds businesses and solves problems, even when the culprit is the power and overreach of the federal government. Such victories are depressingly rare. For that accomplishment, the Hornes deserve their day in the sun.