In a World Without Regulations, Imagining Our Prosperity
"Back off! What perfect advice!" I thought. The New York Times had opined that prescriptive rules imposed on children can arrest their creativity. Regulations by our paternalistic state have the same effect on adults who have emerged from the gantlet of childhood to become the creators and entrepreneurs behind our prosperity. The Small Business Administration reported a few years back that regulations cost our economy close to $2 trillion per year. That's bad enough, but the same report went on to discuss "knock-on effects" that are harder to quantify. One of these is that regulations cause creative people to misdirect their efforts in costly ways.
Consider Tesla Motors, which arguably wouldn't exist but for environmental regulations. It also benefits from government subsidies of its "green" technology and tax credits for its customers - and loses money anyway. As if the need for such "incentives" weren't proof enough that no real demand for electric cars exists, the company has been lobbying for tougher Corporate Average Fuel Efficiency (CAFE) standards even as traditional automakers seek relief from the onerous 54.5 mpg 2025 target. Setting aside Tesla's blatant rent-seeking -- a problem in itself -- one can only imagine what their engineers might have achieved had the government not crafted a regulatory sandbox to confine their efforts.
Drizly, like Tesla Motors, is a company that probably wouldn't exist without regulations, but it does provide customers with services that have a real market demand: alcohol delivery and identity verification, for example. Although this company is hardly guilty of rent-seeking, and many might find inspiration in the perseverance of its founders, I see another tale of what might have been. PandoDaily once lauded a David-like Drizly for beating delivery Goliath Amazon "on its own turf" after its move to Seattle. But Amazon backed out of alcohol delivery in Seattle. Drizly saw a business opportunity anyway:
Drizly began in 2012 when two friends -- co-founders Nick Rellas and Justin Robinson -- were curious why they couldn't get beer delivered when nearly everything else had become so readily available through technology. That casual curiosity quickly evolved into a fascination (or obsession, as some would call it) on why technology hadn't been able to integrate into regulated industries like alcohol. Before long, the two Boston College graduates started down a path to figure out a way to legally make alcohol delivery a reality. In 2013, Drizly was born.
Not to knock Rellas and Robinson's hard work, but isn't it a shame that all their effort went into solving problems that wouldn't exist were it not for our byzantine and improper regulations on alcohol? These regulations made Amazon decide that the segment wasn't profitable enough. Drizly salvaged it, but the fact remains that selling alcohol is, in most repsects, artificially difficult, and that the efforts of two young men were spent tackling that problem instead of something else.
Industries that would exist without regulations, still see losses of time, energy, and profitability. Consider Uber, whose success against government-imposed taxi monopolies graces our headlines on a near-daily basis. One day, we hear that a cab company in San Francisco that stood in its way has filed for bankruptcy; the next, we hear that a proposal to impose a five-minute minimum wait time on rides got trounced in London. Good for Uber, but it beggars belief that such a company has to constantly swat regulatory gnats. Grossing $10 billion a year one ride at a time, Uber is plainly, in the words of London's Mayor "making things much easier" for its customers. How much easier could things be everywhere -- for everyone but legions of rent-seekers and a pro-capitalist pundit or two -- if Uber could just ... help drivers and riders trade with one another? Translation: How much more profit would Uber make without the constant headwind? And how much faster could it grow?
Regulations don't just cost us money; they waste valuable time, energy, and ingenuity. Don't be fooled by Tesla's beautiful cars, or the convenience of home beer delivery, or the latest story of Uber beating City Hall. To the extent that these stories involve regulatory obstacles, they should remind us of Frederic Bastiat's Parable of the Broken Window, in which the observable windfall of the glassmaker masked the hidden losses of others. We may still rightly admire many aspects of these companies, but we can only imagine what might have been -- or what we might stand to gain -- if the government would just back off.