Archive for the ‘Cronyism’ Category

Now that the supposedly tech-friendly Austin has banned Uber, what comes next?

Saturday, May 21st, 2016

Originally published at Rare

Austin, Texas is a youthful, entrepreneurial city, known for its tech startups, food trucks, and innovation. Although a liberal bastion, it still isn’t the type of place you’d expect residents to reject technological advancements.

Yet recently, Austin voters rejected an arguably misleading ridesharing proposition that claimed its aim was to enhance safety. But the regulations were so overly onerous and based in cronyism that ridesharing companies Uber and Lyft had to leave.

As John Daniel Davidson wrote at The Federalist:

“The story of how Uber and Lyft were driven out of Austin is a textbook example of how government-backed cartels force out competition under the guise of creating a ‘level playing field’ or ensuring ‘consumer safety.’

In this case, the cartel is the local taxi cab lobby, which successfully saddled Uber and Lyft with cab-like regulations that shouldn’t apply to ridesharing companies.

The result is that thousands of enterprising Austinites have been deprived a source of income, while thousands more have been deprived of ridesharing services that were reducing congestion and drunk driving while expanding transportation options to underserved parts of town.”

Due to this, Austin is now the only major city in the country without Uber. Even Las Vegas, which has arguably the most powerful taxi cartel in the country, acquiesced to Uber last year under public pressure.

And now, Austin is needlessly suffering.

As tech entrepreneur Courtney Powell noted at AustinStartups.com, “If we estimate the total wages earned by part-time Uber and Lyft drivers in 2015 using … 10k drivers in Austin multiplied by 60% part-time drivers, multiplied by 5 hours per week … multiplied by $19 per hour — that’s $29 million in part-time yearly earnings alone that will no longer be fed right back into the local economy in the form of income, spending, and taxes.”

And this doesn’t even touch how consumers are affected. In fact Greg Hamilton, the Sheriff of Travis County, has expressed support for ridesharing, because it has reduced instances of drunk driving. As he explained, the arrival of Uber and Lyft to Austin had a positive impact.

“The number of DWI arrests [in Austin] fell 16-percent in 2014. DWI-related crashes fell even more citywide, decreasing by 23-percent last year,” said Hamilton.

This begs the question, what’s next for Austin? Ellen Troxclair, one of Austin’s few libertarian-conservative councilmembers, had this to say about the future of ridesharing in her city:

“I continue to believe that a fair and limited regulatory environment for transportation providers benefits all consumers, and I hope we can work toward that outcome … I remain hopeful that the Council will work on solutions that will allow Uber and Lyft to return to Austin as soon as possible.”

The battle isn’t over. And as Troxclair has noted, Austin is entirely unprepared to even enforce its new regulations. “Uber and Lyft left Austin because they were unable to comply with the city’s new fingerprinting rules,” wrote Troxclair.

“Meanwhile, the city is bending over backwards to encourage customers to use Get Me and Wingz, who not only arenot fingerprinting their drivers, but may not even run any kind of background checks before passengers get in the car.”

Sadly, this goes to show that, as is typical, government is using “public safety” as a stand-in for their desire to control an economy absent unwanted competition. And as usual, people continue to defy these unnecessary regulations.

View From the Wing, a travel blog, had a smart tip for Austin area residents and visitors: Simply drop your location pin outside of the city limits, then immediately call your driver and ask if he or she will pick you up where you’re actually located.

Talk about a smart market solution to a silly law! While this workaround might be a good temporary solution for some, Austin does need to allow Uber and Lyft back into their city indefinitely.

Halting progress for the sake of cronyism is bad policy, and I have faith that Austin’s consumers will fight alongside their pro-ridesharing city council members to eventually undo this travesty.

Why did the government force Richard Branson into a merger he opposes?

Thursday, April 7th, 2016

Originally published at Rare

Virgin America is an offshoot of British entrepreneur Richard Branson’s Virgin Atlantic airline. Known for its distinctively customer-focused brand and fun aesthetic, Virgin America has operated in the United States since 2007 and has gained a loyal following. So when it was announced this week that Virgin America would be merging with Alaska Airlines, many people were disappointed.

One such person was Branson himself.

As he wrote at Virgin’s website:

I would be lying if I didn’t admit sadness that our wonderful airline is merging with another. Because I’m not American, the US Department of Transportation stipulated I take some of my shares in Virgin America as non-voting shares, reducing my influence over any takeover. So there was sadly nothing I could do to stop it.

Admittedly, I wasn’t familiar with this particular regulation until I heard this story. And it turns out that it’s exactly the kind of protectionist nonsense Branson cited in his piece about Virgin America’s history, which includes initial difficulties entering the market due to a regulatory environment meant to stifle competition.

“The commitment to create a truly guest-focused airline and the dedication and will to make it happen – through some of the most challenging economic times and anti-competitive obstacles – has resulted in a financially successful business that achieved record profits last year,” wrote Branson.

He also says that Virgin injected a new competition into the airline market that forced other carriers to improve their service.

“When Virgin America launched, fleetwide WiFi was considered a radical idea,” said Branson. “[S]o was touch-screen entertainment at every seat, and brand new and beautifully designed cabins. Airlines have had to invest in better products to try to compete. That is a testament to the entire Virgin America team.”

Isn’t this precisely what the free market should be about? In theory, yes. But unfortunately, federal regulations, especially the extremely onerous ones that permeate the transportation industry, have made airline travel in the United States a more difficult proposition than it has to be.

As Branson notes, “Today, the four mega airlines control more than 80 per cent of the US market. Consolidation is a trend that sadly cannot be stopped.” Unfortunately, many people wrongfully attribute this problem to capitalism. But as is the case in so many areas of business, the airline industry is rife with regulations that yield government-mandated monopolies. This leads to lower quality options for consumers, while a few well-connected politicians and corporations benefit.

Writing at the New York Times in 2012 about the issue that Virgin America is now facing, the Brookings Institution’s Clifford Winston explained why there’s no good reason to restrict foreign airlines the way the United States does:

[A]llow foreign airlines, including discount carriers like Ryanair and global players like Qantas and British Airways, to serve domestic routes in the United States. Why, after all, should an industry that has ingeniously used free-market principles to squeeze the most revenue out of each middle seat be protected from competing in a real free market?

Sadly, in the nearly four years that have passed since Winston made those observations, the anti-competitive regulatory environment hasn’t improved.

Hopefully, as supporters of more competition, lower prices, and better service are affected by these regulations, we can lobby to have them changed. Richard Branson’s platform will certainly help draw attention to the issue. And regardless of the outcome for Virgin America, U.S. consumers will continue to feel the squeeze if the regulatory environment remains as is.

As Winston aptly says, “By allowing foreign airlines to serve American domestic markets, the process of creating a truly free market in airline services here would be complete and, as in the case of international markets, would provide travelers the benefit of more flight choices and lower fares.”

That’s something we should all support.

Debbie Wasserman Schultz hates marijuana—guess what industry she takes money from

Friday, January 8th, 2016

Originally published at Rare

Debbie Wasserman Schultz, chairwoman of the Democratic National Committee and a congresswoman from Florida, recently told Ana Marie Cox of the New York Times that she’s less progressive on marijuana legalization than her fellow partisans.

Explaining her position, she said, “I guess I’m protective. Safety has been my top legislative priority. I’m driven by the idea that safety is really a core function of government.”

But there may be more to Wasserman Schultz’s opinion on marijuana than meets the eye.

Writing at The Intercept, Zaid Jilani points out that Wasserman Schultz counts alcohol PACs among her biggest donors. “The fifth-largest pool of money the congresswoman has collected for her re-election campaign has been from the beer, wine, and liquor industry,” reports Jilani. “The $18,500 came from PACs including Bacardi USA, the National Beer Wholesalers Association, Southern Wine & Spirits, and the Wine & Spirits Wholesalers of America,” he adds.

While there’s nothing legally or even morally untoward about a congresswoman receiving campaign money from alcohol interests, money trails such as these can be revealing. As Ben Cohen at U.S. News & World Report noted, “The alcohol and beer industries have…lobbied for years to keep marijuana illegal because they fear the competition that legalized weed would bring.”

Considering that Wasserman Schultz’s primary argument against marijuana legalization is safety, her coziness with the alcohol industry seems hypocritical. As Jilani pointed out, excessive alcohol consumption is responsible for one in 10 deaths among those between the ages of 20 and 64. Marijuana, on the other hand, is the culprit in virtually zero fatalities.

Wasserman Schultz may have a legitimate interest in public safety, clinging to the old-fashioned fear-mongering about marijuana that has long gripped her congressional colleagues. As she told Cox, “My criminal-justice record is perhaps not as progressive as some of my fellow progressives’,” a fair point to concede.

But with data on the dangers of marijuana versus alcohol staring her in the face, coupled with the money she receives from the latter industry, observers aren’t wrong to suspect there are issues of cronyism at play.

Perhaps one day, Wasserman Schultz will join the 64 percent of Democrats who believe marijuana should be legalized. In the meantime, it doesn’t look like she’ll be returning any of those alcohol PAC donations, despite her deep concerns about public safety.

The federal government has declared war on crowdfunding

Monday, January 4th, 2016

Originally published at Rare

Innovation is a key component of any free-market economy. Unfortunately, there are many who believe that unencumbered innovation ought to be curbed, despite the fact that capitalism is the system that has generated the most prosperity in human history.

The latest example of this comes from the Securities and Exchange Commission, a federal bureaucracy charged with regulating markets and allegedly protecting investors. The SEC was tasked with writing regulatory rules for the Jumpstart Our Business Startups Act, which was signed into law in April of 2012 under the much-heralded promise that everyday investors—not just accredited millionaires—could acquire early stakes in startups through “equity crowdfunding.”

As Christopher Mims explained at the Wall Street Journal, “Allowing everyday Americans to invest in today’s high-growth startups—picture grandma and grandpa putting a portion of their retirement savings into the next pre-IPO Facebook—has long been the dream of advocates of so-called equity crowdfunding.” (Pre-IPO is a reference to a startup before its “initial public offering,” i.e., before a private company sells stock to the public.)

“Imagine” writes Mims, “if all the people who backed the Oculus Rift VR headset—which raised $2.5 million on crowdfunding site Kickstarter in 2012 and was sold to Facebook for $2 billion in 2014—had gotten a piece of the company, instead of just early access to its headsets.” It’s certainly a hypothetical worth exploring, and one that the JOBS Act was supposed to address.

Unfortunately, as the SEC’s restrictive rules around the JOBS Act become clearer, we’re seeing a fairly typical confluence of established interests supporting government efforts to restrict new economic activity. As Mims notes, the disclosure requirements and limits on investments written into the regulatory schema—which arguably go against the law’s original intent—make equity crowdfunding in high-growth startups all but impossible.

Not surprisingly, there are professional investors who feel the SEC’s rules are reasonable and not, for lack of a better term, blatantly patronizing. Charles Moldow, a partner at Foundation Capital, told Mims, “the idea that a nonaccredited or even accredited investor is going to somehow be successful at early-stage venture capital strikes me as challenging.”

Even if Moldow is correct, it begs the question: so what? The government doesn’t stop the housewife with a shoe fetish from maxing out her credit card at Macy’s. Why should it stop a stay-at-home mom with an eye for tech trends from making an arguably more responsible early-stage investment with the potential for return?

Ben Weingarten at The Federalist is correct when he states simply: “The government thinks you’re too dumb to try crowdfunding.” He adds: “All of these rules and regulations presumably are intended to protect investors from themselves. But is this the job of government? And what does it say about the government’s dim view of the public that unelected bureaucrats at the SEC ought to have such control over how we invest our money?”

Frankly, even if the government were adept at protecting small-time investors, it isn’t their role. And the truth is, markets are always better regulators than bureaucrats. Weingarten sums it up aptly:

Free markets composed of individuals participating in voluntary exchange are remarkably adept at digesting information and allocating capital accordingly. As a regulator, the marketplace calibrates the subjective preferences of consumers and investors and bakes in all available knowledge to price signals, resulting ultimately in profits or losses. The SEC, try though it might, is an inferior regulator.

The SEC’s crowdfunding rules are set to go into effect in May of this year, and as Mims notes, although it’s possible that Congress will challenge these regulations, we’re still a long way from “Kickstarter but for shares in a company.” The government, as usual, works at a snail’s pace. It took until 2012 to pass what seemed like a commonsense, pro-market law, then another three years for a bureaucracy to set us back to square one.

In the meantime however, feel free to gamble your money away in various nonsensical fashions—but don’t you dare acquire early-stage shares in a company!

“Big Beer” is abusing unnecessary government regulations to hamper craft brewers

Monday, December 14th, 2015

Originally published at Rare

The craft beer industry has grown from serving a niche market to fostering a revolution in how Americans consume this iconic beverage. From blondes and pale ales to porters and reds, the growth of craft brewing has created an environment where the tasteless pseudo-lagers of years past are far from the only option widely available to beer connoisseurs.

Currently, there are over 3,500 craft breweries in the United States – up from only 110 thirty years ago – and the industry’s sales are on the rise. Given all of this competition, Anheuser-Busch InBev, the company responsible for retrograde brews like Budweiser and Michelob, wants to make up for lost sales.

Sadly, in an attempt to accomplish their goal of selling more subpar beer, they’re turning to a pernicious form of cronyism rather than fair market competition, harnessing an outdated government regulation to halt the progress of their increasingly popular craft rivals.

The beer industry has long been held down by a Prohibition-era regulatory relic known as the“three-tiered” distribution system. Today, craft brewers are still burdened by a regime that forces all beer-makers to sign a contract with a distributor, who then sells their product to restaurants, bars and stores. This means brewers cannot work directly with companies that put their product in front of consumers; an unnecessary regulation that creates a monopolistic middleman.

This distributorship regime is what Anheuser-Busch is now taking advantage of in an effort to squeeze out their small competitors. Since craft breweries cannot engage in mass distribution of their own product due to these nanny-crony laws, the parent company of the increasingly unpopular Bud Light is now exploiting this government-mandated monopoly.

As Tripp Mickle at the Wall Street Journal reported, “The world’s largest brewer last month introduced a new incentive program that could offer some independent distributors in the U.S. annual reimbursements of as much as $1.5 million if 98% of the beers they sell are Anheuser-Busch InBev brands.”

Mickle went on to explain that, “Distributors whose sales volumes are 95% made up of Anheuser-Busch InBev brands would be eligible to have the brewer cover as much as half of their contractual marketing support for those brands, which includes retail promotion and display costs.”

While it’s true that with this program, Anheuser-Busch is technically “playing by the rules,” the rules themselves are what have banned the type of market that if in tact, would allow the free flow of craft beer alongside the declining brews of the past. Absent a legally forced contract with a distributor, many of which are starting to drop craft brands as a result of Anheuser-Busch’s “incentive program,” small brewers would be free to sell their products directly to restaurants, stores, and consumers as they see fit.

Instead, as is all too often the case, a big company being squeezed by superior competitors is latching onto an archaic, legally mandated monopoly, denying consumers access to a product for which there is clear demand. From a free market perspective, the solution is to dismantle the three-tier distribution scheme in question, allowing craft brewers to sell their wares directly – bypassing the monopolistic scheme Anheuser-Busch has found a way to unfairly leverage.

Our less market-oriented friends on the left often identify the same problem with “Big Beer” trying to push out its smaller competitors. Instead of seeking to repeal the regulations that created a legalized monopoly in the first place however, they want even more unnecessary government intervention in a market that requires very little.

Writing at liberal Mother Jones, Tom Philpott lays out the problem with the three-tiered system as described above, but his first instinct isn’t to question the regulatory scheme itself. Instead, he asks if what Anheuser-Busch is doing is legal under antitrust laws; hoping that the government might break up the giant company’s monopoly, yet seemingly blind to the fact that it’s a legally mandated one; far from an example of a market problem.

All in all, it’s clear that what Anheuser-Busch is doing in an attempt to minimize competition from its craft competitors could not take place in a truly free market. Even under strong restrictions, sales of craft beer are growing at a rate set to outpace the old brands.

Imagine what kind of craft creativity could be unleashed for all to enjoy if the government would simply get out of the beer industry’s way all together! That would certainly be a development worth raising our glasses to.