Government regulations are supposed to protect the "little guy". But often regulations protect established interests, and hurt little guys. New York recently made it illegal for most people to offer short-term rentals via popular websites like Airbnb and Roomorama. In this week's syndicated column, I look at how the government stifles innovation and hurts the little guy.
Roomorama threatens the status quo. Hotels and hotel unions don't like it. Regulators who issue permits to hotels don't like it. So the established businesses, the insiders, work with friendly politicians to craft rules that crush the newcomers.
Economists call that process "regulatory capture." It happened even during the New Deal. FDR railed against "the money interests" and pushed through regulations controlling what businesses could do, including establishing a minimum wage, maximum hours, agreed-upon production levels and minimum prices for each industry, to eliminate "cutthroat competition." Working at night was forbidden. Government enforcers made surprise inspections and could seize control of businesses on the spot.
It turned out that most of those regulations were shaped by big business itself, because the established businesses didn't want competition, and both business and regulators like predictability.
Even when regulators mean well - when they worry about safety or whether customers get basic services - regulations are based on the old, familiar ways of doing things, simply because regulators don't know anything else. That's great for old, familiar firms - but bad for the innovative startup that wants to try something different. And bad for consumers who might have benefitted.
The new idea might be a bad one, but if it is, it will die on its own. Market competition will kill it.
But the new idea might be the next Microsoft. Or Roomorama. Or Lyft, a ride-sharing app that helps people find cars without having to use (heavily regulated) local taxi cartels. Like a Roomorama for cars, Lyft lets most any car owner give people rides. It, too, faces regulatory opposition.
Regulators always say they must protect the "little guy." But it's the little guys who are most hurt by these rules.
The rest of my syndicated column here.