Reality television has spawned numerous shows about restaurants and bars, including “Bar Rescue” and “Restaurant: Impossible,” which focus on failing restaurants. The shows provide a look into the challenges, work, and risk of running a restaurant. For instance, just over a quarter of restaurants fail in their first year, and a little over half close within five years; these percentages are slightly higher than for all new businesses. By featuring restaurants suffering from self-inflicted wounds, they also raise important questions about our market economy.
The restaurants on the shows are often failing for fairly obvious reasons. Robert Irvine, host of “Restaurant: Impossible,” has a top five list of reasons why restaurants fail which includes poor customer service, poor quality food, and lack of basic accounting skills. Another industry expert’s list included not paying taxes. Who could imagine that restaurants could fail for these reasons!
I have never run a business, and would likely need a rescue if I tried to run a restaurant. But the owners of these failing restaurants appear to make predictable, avoidable mistakes. I suspect that other viewers probably share my frequent reaction of, “Who thought it was a good idea to let that person run a restaurant?”
Poor ownership has consequences. A hard working employee with bills to pay could lose her job because her boss didn’t know how to calculate food cost or pay the taxes. The buildings, kitchen equipment, employees and food are all scarce resources, and our economy realizes little value when they are used by owners who do not know how to run a restaurant.
The mistakes of some restaurant owners should perhaps come as no surprise, since owners do not have to prove their expertise to the government before starting. People must get a license from the state and consequently demonstrate relevant training to tend bar, but not to run the restaurant. Business licenses do not test the owner’s knowledge of business or other relevant aptitudes, like people skills.
Would government licensing of prospective entrepreneurs improve our economy? I don’t think so, for several reasons. For starters, would-be restauranteurs need financing, so a business partner or bank backs new restaurants and should be alert for problems. The restaurants are in imminent danger of closing, so their problems have not escaped notice. The market economy lets some marginally qualified persons run restaurants (I’m trying to be polite!), but the worst-run restaurants get closed relatively quickly.
Licensing might prevent some poorly run restaurants, but could easily be misused. The best way to scrutinize restaurant proposals would be to have successful restauranteurs conduct reviews. But this allows current restaurant owners to prevent new competition from opening, a power too susceptible to abuse. Occupational licensing by states often imposes unnecessary training and education requirements on plumbers, bartenders and other professions. Certificate of Need regulations in healthcare let state governments to determine whether new hospitals or other medical facilities are needed. Research shows that such laws reduce competition and increase prices for consumers, making our economy less prosperous.
Many Americans dream of starting a business and value the autonomy of being their own boss. Often business people simply love the challenge of trying to make their business succeed. Restricting the freedom to start a business would deny millions of Americans an important life opportunity, although it may avoid some epic failures.
Finally, one never knows where ideas for new products and services will come from in a market economy. Our prosperity results from the division of knowledge, and this division limits the ability of experts to evaluate new ideas. Unexpected successes in the restaurant business demonstrate that experts never know for certain what will work.
“Bar Rescue” and “Restaurant: Impossible” illustrate apparent waste in the market economy: the use of resources by businesses with little chance of success. The opportunity to pursue our dreams, itself an important output of our economy, also means the inevitability of failure by some. By helping disseminate the expertise of hosts Jon Taffer and Robert Irvine, these shows will help make our economy more efficient.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. Respond to him at firstname.lastname@example.org and like the Johnson Center on Facebook.al