Mamdani is Right about Permitting, But Not Grocery Stores
New York City’s mayor, Zohran Mamdani, is by no means a free market advocate. Nevertheless, even he understands that burdensome and unnecessary licenses and regulations can get in the way of commerce. He ran as a democratic socialist and has said plenty that I disagree with, and has pushed city-owned grocery stores (more on that later), but I try to call balls and strikes: his plans to remove barriers to business are a great idea. A new video from his office says the following: streamlining access to street vending, reducing rules for bodegas and grocery stores, eliminating redundant frozen dessert permits for restaurants, doubling the term of a license for pawn brokers and newsstands, streamlining permits for barbershops, and eliminating outdated permits, paperwork, and unnecessary fines for small businesses.
The main target that he brought forward first was the “frozen dessert” permit. Under current rules, a restaurant that already holds a general food-service permit (you know, the one that lets it serve food to the public), has to go get a second permit if it wants to sell ice cream or milkshakes.
The city has nearly 200,000 small businesses employing about a million New Yorkers, and by Mamdani’s own account, what wears owners down isn’t any single fee but the sheer paperwork and unpredictability of dealing with the city at all. This is exactly what the empirical literature on regulation and firm size predicts.
Red Tape: Worse for Small Firms
A 2024 Cato study found that regulatory compliance eats up somewhere between 1.3 and 3.3% of the average firm’s wage bill, and compliance costs are lower for really large firms. Once over 500 employees, big companies can centralize compliance and even lobby for exemptions. A small restaurant or bodega doesn’t have the same team, so the fixed cost of the permits is relatively higher (as a percentage of revenue) for the same permit.
Other research by economists Macedoni and Weinberger found that larger firms are more likely to lobby for stricter, fixed-cost regulation than their smaller competitors. Since the largest firms can better afford these costs, they push for such regulations since the fixed cost to comply will be a larger burden for smaller companies, and can be so punitive that would-be entrants may not enter in the first place. (By the way, we are seeing this from large AI companies right now… just something to keep in mind). Pete Calcagno and Russ Sobel found that regulations decrease the percentage of small firms relative to larger ones, aligning with this above work too.
None of this even requires assuming that regulators are corrupt or bought. Fixed compliance costs behave like a fixed cost anywhere else in economics. They fall hardest, per unit of output, on whoever produces the least output. A permit that costs $2,000 to obtain and renew is tiny to a chain with fifty locations and a compliance department, but can be the difference between opening and not opening for a single ice cream shop on a corner.
But Why City-Owned Grocery Stores?
The same week reformers are celebrating the death of the frozen dessert permit, Mamdani is also pushing forward his campaign’s marquee promise… opening five city-owned grocery stores. The idea is that there’s a core basket of staples like produce, meat, fish, eggs, milk, bread that will be priced 30 percent below retail. To make the discount possible, the city itself will cover the rent, waive property taxes, and fund the initial build-out; private operators selected by the city will handle day-to-day staffing and merchandising.
The problem is that this plan runs directly against everything the OPEN reforms are supposed to fix. The entire logic of killing the frozen dessert permit or the stoop-line license is that fixed costs (paperwork, permits, and licenses) fall disproportionately on the small operator who doesn’t have scale to spread them over. A city-owned store that pays no rent and no property taxes has effectively been a massive subsidy by reducing the highest fixed cost in the retail grocery business; but, the bodega or supermarket across the street keeps paying both in full. It’s creating a competitor that small businesses cannot possibly match on price. Bodega owners realize this. Radhames Rodriguez, president of United Bodegas of America, pointed out that stores like his can’t compete with a rent-free, tax-free rival regardless of how efficiently they run their business. Furthermore, profits on grocery stores are already extremely tiny (around 1-3%), so “unfair” competition will squeeze them.
The genuine good that Mamdani is doing with removing burdensome requirements on small bodegas (and other small businesses) can be wiped away by the city-owned grocery stores. It’s tough to campaign on removing red tape that disadvantages small business owners one day, and then subsidize a rent-free, tax-free competitor to those same small business owners the next. I’m all for removing the permits and paperwork, but don’t undo that good with the state-owned grocery stores.