You Can’t Regulate Away Crony Capitalism

In a time of political polarization, it can be reassuring when the left and the right agree on an issue. One such area of consensus is the recognition of crony capitalism where big business and government work together for their own interests through systems of reciprocal favors.

The Taxi Industry Is a Prime Example of Crony Capitalism

An example of crony capitalism can be seen in the conflict between rideshare companies, like Uber and Lyft, and the taxi industry. Because Uber poses a competitive threat to the taxi business, the taxi industry has pushed hard to ban Uber from cities across the country by lobbying local governments with varying degrees of success.

The taxi industry has enjoyed a monopoly for a long time thanks to their close relationship with government. By creating occupational licenses and charging what is often several hundred thousand dollars for a medallion, the taxi industry posed massive barriers to entry on their competition. Now, this government-sanctioned monopoly is facing an inevitable dissolution because of the innovation of ridesharing companies.

Although both sides of the political spectrum may agree that relationships like the one between the taxi industry and local governments are a problem, they often disagree on the solution.

The Solution of Increased Regulation Is No Solution at All

The solution usually proposed by the left is to give the government more power to regulate business. The theory is that if we can increase the scope of the government, then government can clamp down on big business. But although this may sound good initially, it ignores the incentives created by government regulations.

When government has more power to regulate business, businesses will respond by shifting more of their resources towards influencing the government to intervene in their favor. Businesses are incentivized to twist the law to their own