When most people hear of “over-regulation,” they tend to think of the EPA or another federal agency strangling an industry with red tape. In this critical view of regulation, it’s bureaucrats versus businesses. But in reality, some of regulation’s most insidious effects arise from entrenched business interests that use the regulatory process to stifle competition.
For example, entrenched businesses may benefit from expensive new regulations precisely because the cost makes it more difficult for upstarts or smaller companies to compete. Dodd-Frank is the best recent example. Passed in the wake of the financial meltdown to allegedly crackdown on Wall Street, the law has instead helped big Wall Street banks consolidate market-share.
According to Marshall Lux and Robert Greene of Harvard’s Kennedy School of Government, since Dodd-Frank, the market-share held by community banks has declined rapidly. Between 2006 and 2010, community banks shrank by six percent. Since Dodd-Frank passed in 2010, community banks have declined by more than 12 percent. The authors explain that Dodd-Frank gutted small banks by “piling up regulatory costs on institutions that neither pose systemic risks nor have the diversified businesses to support such costs.” As one North Carolina banker quoted by the authors explained, “When they created ‘too big to fail,’ they also created ‘too small to succeed.’”
This phenomenon is perhaps even more prevalent at the state and local level. At these lower levels of government, thousands of regulatory licensing boards both police industries and act as a roadblock to new competition or new business models.
Take upstart Uber as an example. Uber is an app-based transportation company that allows consumers around the world to find drivers willing to give them a ride. Uber users download an app. When you’re ready for a ride, you ask the app to find the nearest Uber-approved driver. Your driver shows up and off you go.
Uber is easier and often less expensive than hailing a cab. No surprise then – consumers love it and traditional cab companies don’t. So, like any other industry facing an existential threat to its existing business model, cab companies and drivers are fighting back. In Illinois, they convinced the legislature to enact more expensive standards for cab companies. In Portland, city officials sued to prevent Uber from operating until it acquired expensive permits for every driver. In Nevada, Uber was forced to shut-down.
The anti-competitive fever may be highest in St. Louis, where a Metropolitan Taxicab Commission controlled by existing operators has the power to disapprove of new competitors for any reason it deems fit – including unwanted competition. Three members of this Cab Cabal own companies that are supposed to be regulated by the commission. Worse, in a rule that would be more appropriate for Chinese-style capitalism, new operators in St. Louis must first apply to the Cabal for a “certificate of convenience and necessity.” In turn, the Cabal has the “power to issue or refuse any Certificate as the public welfare, convenience or necessity may require.” The Cabal can even turn down an application because it doesn’t like the color scheme of the applicant’s vehicles.
If Uber had not tried to enter the market in St. Louis, this ridiculous cabal might have continued without significant challenge. But now that it has – and been denied, people are taking notice. Thousands of would-be small business owners have requested information from Uber on how to become a driver in Missouri, only to be thwarted by the taxi cab cabal. Even more consumers have sent Uber inquiries asking when the app will be available for use in the 19th largest metropolitan market in the country.
The St. Louis taxi cabal won’t budge, so state legislators are taking action. Along with State Senator Kurt Schaefer (R-Columbia), I filed legislation to bypass the cabal by creating a state-wide licensing process for companies like Uber. House Bill 792 would require “transportation network companies” to conduct background checks on drivers and carry adequate insurance.
Missouri consumers and entrepreneurs shouldn’t have to kiss the rings of the Metropolitan Taxicab Commission to freely engage in a simple market transaction. Existing cab companies should not have the legal authority to kill new competition for any reason – let alone color scheme or a requirement that the new competitor show a “need” for a new company. Instead, any licensing regime should prescribe simple rules of the road, but not seek to determine or limit the composition of the traffic.