Underground restaurants defy the law to serve free market meals

January 27, 12:40 PMCivil Liberties ExaminerJ.D. Tuccille

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Pull the curtains -- this meal is going underground.

Underground restaurants -- that is, eateries operating beyond the reach of taxes and regulations -- will be a big deal in 2009, say a pair of prominent restaurant consultants. In a list of restaurant predictions for 2009, the duo suggest that black-market restaurants will thrive at least in part because of their defiance of intrusive laws. Such considerations are likely to become increasingly important during an economic downturn when heavy-handed rules are back in style. 

As part of their forecast of restaurant trends for 2009 (PDF), Joseph Baum and Michael Whiteman, the restaurant consultants behind Windows on the World, predict that black-market establishments will grow like mushrooms, at least partially because of diners' desire to "stick it to the man" by "patronizing entrepreneurs who have no health department license, pay no taxes, insurance or social security..."

The high cost and imposing barrier to entry posed by taxes and regulations have long been cited as major spurs to the growth of underground restaurants. A 2005 article for San Jose's MetroActive quoted underground restaurateurs on exactly that point.

It costs $200,000 just for a permit to be allowed to buy water from the city!" exclaims [Michael] Hale. "You have to get tons of permits from various people. You've got to get a building permit, a permit if you want to remodel, you have to get licenses for beer and wine, and you have to get certified by the Health Board."

Even in good times, evading tight laws and high taxes can be a powerful inducement to operate in the shadows. When times turn tough evan as regulations become even more fashionable, it's easy to conclude that more entrepreneurs are likely to go subterranean.

In fact, taxes and regulations are exactly what push most underground operators into the shadows. Friedrich Schneider, a professor of economics at the Johannes Kepler University of Linz, Austria, is a widely recognized expert on underground economies. According to him (PDF):

The shadow economy includes all market-based legal production of goods and services that are deliberately concealed from public authorities for the following reasons:

1. to avoid payment of income, value added or other taxes,
2. to avoid payment of social security contributions,
3. to avoid having to meet certain legal labor market standards, such as minimum wages, maximum working hours, safety standards, etc., and
4. to avoid complying with certain administrative procedures, such as completing statistical questionnaires or other administrative forms.

The permits and certifications Michael Hale complained about to MetroActive fit right into that definition. Those regulatory requirements are only going to get more onerous in a time when profits are down -- and during a time when Business Week pronounces that the "deregulation era dies a sudden death." 

So Baum and Whiteman are almost certainly right. Underground restaurants will be a big hit in 2009. And so will the shadow economy as a whole. Just about anybody who wants to operate in a free market will have to do so in defiance of the law.

Contact J.D.: civilliberties (at) tuccille.com