Archive for the ‘Jobs’ Category

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!

This victory in San Francisco marks a big step forward for the sharing economy

Friday, November 6th, 2015

Originally published at Rare

On Tuesday, voters in San Francisco went to the polls to decide the fate of Proposition F, which would have restricted the ability of homeowners in the city to rent their property out through the popular Airbnb platform.

Airbnb, part of the growing “sharing economy” that includes services such as the ridesharing app Uber and peer-to-peer car rental platform Turo, allows users to rent out unoccupied homes or rooms. What these services have in common is that they take out the middleman, harnessing technology to connect suppliers to demand in a way that undercuts the traditional retail model of companies such as taxis and hotels.

The San Francisco Airbnb proposition would have limited the time an owner could rent his property to 75 days per year, and would have forced him to register with the city. The current regulatory environment allows for unlimited rentals if the owner occupies the premises during the time his guests are present, and limits short-term rentals of unoccupied properties to 90 days per year.

Fortunately, Propostion F was rejected by a margin of 55 percent to 45 percent.

The fact that voters in the city where Airbnb is headquartered turned down more government regulation speaks to several factors. One is the simple fact that the sharing economy has proven to be quite popular among consumers. And in San Francisco, where median rent payments are an astonishing $4,390 per month, offering extra space through Airbnb is the only way some people can make ends meet.

Also worth mentioning is the fact that the hotel industry did not invest heavily in lobbying for the proposition. This contrasts with New York City, where angry hoteliers waged aggressive campaigns against Airbnb that resulted in severe use restrictions. In San Francisco, it was Airbnb itself, which is worth $25.5 billion, that spent $8.4 million to defeat the measure.

Ultimately, the proposition’s failure is a good sign for those who believe in the positive disruptive power of the sharing economy. With the advent of technology that makes it easier for strangers to connect with one another and exchange goods and services, many city and state licensing schemes seem increasingly outdated.

What regulators have to ask themselves is whether they’ll act to stifle these new technologies or accommodate them. There are countless examples of both reactions around the country. In the end, consumer demand often tilts the scales towards accommodation, but not always. Hell hath no fury like a giant corporation that lobbies the government for protection against competition.

One of the reasons the sharing economy has been able to flourish despite the fact that many governments and their corporate benefactors would like it banned is because bureaucrats simply don’t have the bandwidth to stop peer-to-peer transactions, particularly when they first become popular under the radar.

Still, don’t expect the strong alliance between big government and big corporations to fall apart any time soon. There will, inevitably, be many battles ahead.

If Uber can beat the Las Vegas taxi cartel, there’s no stopping them now

Thursday, November 5th, 2015

Originally published at Rare

Consumers like Uber. It’s cheaper, cleaner, and more convenient than traditional government-controlled taxis – which is precisely why cab companies, dependent upon being granted legal monopolies, want it banned. While the ridesharing company has faced intense opposition from many city governments across the country, nothing has been quite like the all-out-warfare defining Uber’s entry into the intensely regimented Las Vegas transportation market.

Given the fact that Vegas’s economy is highly dependent on tourism (41.1 million people visit annually), the taxi industry has done everything in its power to protect its lucrative slice of the pie. As Johana Bhuiyan, who reports on transportation and the sharing economy for Buzzfeed News explained in a lengthy expose entitled “Sex, Drugs, and Transportation,” the Las Vegas taxi industry has long operated like a government-sanctioned gang.

“What made Vegas unique — what made it Uber’s biggest challenge yet — was the extent to which local governments were willing to protect the incumbents,” wrote Bhuiyan. “In Las Vegas, Uber and its pugnacious CEO Travis Kalanick really did run into the corrupt taxi cartel bogeymen that they had long claimed to be saving us from. And this cartel would prove to be their most formidable opponent.”

So formidable an opponent in fact, that when the ridesharing company engaged in a bit of permissionless innovation and entered the Vegas market last year, two unmarked vehicles rushed to Caesar’s Palace and cut-off the first Uber attempting to make a pickup in the city. The driver and passengers were then ordered out of the car by two masked officers donning bulletproof vests.

As Bhuiyan explained, these over-the-top government agents were from the Taxicab Authority and the Nevada Transportation Authority. So incensed were they by the prospect of a free market alternative to their government monopoly, they behaved as if an Uber ride ought to be dealt with like a counterterror operation. Yet when actual crimes – namely extortion, prostitution, fraud, and drug trafficking – were being facilitated by powerful members of the taxi cartel, authorities often looked the other way.

In fact, even after Charles Horkey, CEO of limousine company CLS Nevada, was charged with and eventually plead guilty to the aforementioned crimes in 2012, the Nevada Transportation Authority allowed him to keep his job – so long as he was monitored by a court-appointed lawyer. CLS did eventually have its operating license revoked, but that didn’t occur until last year.

Essentially, Horky was caught managing a massive criminal enterprise – a human and drug trafficking operation with a limo company as a front to facilitate the activity – yet an Uber picking passengers up at Caesar’s Palace is what warrants an armed raid? The corrupt double standard was glaringly obvious. Uber carried on however, undeterred by the taxi cartel’s government-sanctioned gangsterism. Thus begun the hard fought legislative battle. And Uber was up against a lot of big money that had been used by taxi companies to buy off the political support they had long used to keep competitors out of their highly regulated market.

In Vegas, there are only 16 cab fleets, and just three companies, Frias, Whittlesea-Bell, and Yellow Checker, own 11 of them. Worse, each operator with a state-sanctioned license is afforded a “competitor veto,” with which they’re allowed to challenge applications submitted for new medallions by smaller companies. Talk about corporatism! This is a classic example of big companies joining with big government to shield themselves from market forces. It’s corrupt, and consumers – who are all too familiar with Vegas’s snaking cab lines – are the ones that suffer.

This regime is what Uber was up against when Nevada’s state assembly – a part time legislature that only meets for 120 days every other year – convened in February of 2015. Lobbyists for the big taxi companies initially went into the session confident that Senate Majority Leader Mike Roberson, a Republican, was on their side. As bills meant to regulate “transportation network companies,” the designation Uber and Lyft are classified under, gained steam during session however, taxi advocates got worried.

According to Bhuiyan, the taxi industry attempted to come to what they considered a compromise: Let the ridesharing companies operate in outlying parts of the city, where cabs had notoriously underserved residents, but give taxis a monopoly on the touristy Vegas strip. This turning point marked the beginning of the end for the cabs, as interest in allowing the “TNCs” full and legal access to the Vegas market increased.

Sources explained to Bhuiyan that State Senate Majority Leader Roberson changing his mind on TNCs was a big part of why Uber and Lyft emerged from Nevada’s legislative session victorious. According to reports, the “thuggish” behavior of the taxi cartels, which had been on full display in Vegas for decades, backfired. These companies and their lobbyists were accustomed to a longstanding quid pro quo where, if they provided enough in donations, they’d get the kickbacks they were used to. When that regime was threatened, the fangs came out.

A good example of the amount of money that’s regularly thrown around in the industry comes from Mark James, the CEO of Integrity Vehicle Solutions Company, who was formerly with one of the Big Three, Frias Transportation. According to data dug up by Bhuiyan, James personally donated a total of $64,750 to candidates between 2010 and 2015 – including Roberson and Nevada’s Governor Brian Sandoval. And during his time at Frias, the company gave $152,741.66 between 2006 and 2013 to influential county and state officials.

This speaks to why transportation lobbyists were incensed when the politicians they thought they’d bought – namely Roberson and Sandoval – “betrayed” them. Instead of working toward a peaceful solution, industry lobbyists and leaders turned to the gangsterism they’d long lived by. One alleged exchange between Roberson and an industry big-wig devolved into a company owner getting in the Senator’s face, demanding to know why he had betrayed him. It was ultimately this sort of behavior from the cab companies that helped pave the way for the competitors they’d long held at bay. By October of this year, Uber and Lyft were on the road.

While the ridesharing companies have improved the overall transportation enterprise in a relatively short period of time, the industry remains far from operating in a free market. After losing in the legislative session, the taxi companies turned to local government to ensure some degrees of protectionism, such as banning rides to and from the airport since Uber doesn’t have the additional licensing the county requires for such activity. Uber drivers of course, still do airport rides, and they’re cited and fined every once in awhile by the authorities still doing what they can to protect taxis.

The reason Uber has been so successful at beating these well-heeled taxi cartels and their political advocates is because they’ve amassed enough consumer demand to, for the most part, overcome the chains of corporatism. This is no small feat, and it requires power most small would-be competitors simply don’t have. The efficacy of Uber’s brand, and the service it offers compared to what’s provided by the government-taxi monopoly, is unparalleled. Uber is a small but persuasive testament to the power of markets over politics.

As Clint Townsend, the marketing and outreach manager at the Cato Institute recently wrote, “Markets compel us to help others in order to help ourselves. That’s why we get up everyday to provide the service of our labor in exchange for wages. The political system turns these incentives on its head, where we enter into a dog-eat-dog, win-lose game where we can pursue our own interest only at the expense of others. In politics, when one policy prescription wins, we must all accept it, without recourse to other options.”

When the only option for consumers in Vegas was the politically protected taxi cartel, everyone lost but the people getting rich off of the monopolistic arrangement. With even the slightest bit of competition, the industry has improved for all consumers. If only this kind of freedom were allowed by default, without having to petition politicians for permission, innovation in transportation could grow to heights even Uber’s most creative thinkers have yet to envision.

President Obama follows the Koch brothers’ lead on criminal justice reform

Tuesday, November 3rd, 2015

Originally published at Rare

In liberal circles, the libertarian Koch Brothers are often demonized as capitalist boogeymen out to increase their profit margin at the expense of the poor. Their defenders respond that free markets do more to alleviate aggregate poverty than redistributionary government schemes. This economic disagreement is likely to continue indefinitely, but there’s a strong area of common ground between liberals and libertarians on one key issue: criminal justice reform.

In fact, Charles and David Koch have been major players in promoting reforms to our penal system, not just by pushing for policy changes legislatively, but by living their values through Koch Industries. In April of this year, Koch Industries decided to “ban the box,” which means they got rid of the checkbox on job applications that force prospective employees to disclose their criminal records. This practice has made it extremely difficult for individuals who are no longer incarcerated to find work—particularly if they happen to be a person of color.

Mark Holden, general counsel for Koch Industries, explained that, “As a large United States-based manufacturing company that employs 60,000 American workers we shouldn’t be rejecting people at the very start of the hiring process who may otherwise be capable and qualified, and want an opportunity to work hard.” As data from the Department of Criminal Justice shows, up to 75 percent of inmates have difficulty finding work during their first year of reentry into society.

When a company chooses to “ban the box,” as Koch has done, the employer won’t know about a prospective hire’s criminal record by simply looking at their application. If a manager expresses interest in a résumé and interviewing begins, they’ll find out about the felony record as the process goes on. The key difference is that the interviewee has already gotten his foot in the door, and the employer is more likely to give him a chance.

This week, President Obama decided to follow suit, announcing on Monday that he signed an executive order that begins eliminating bias against those with criminal records in the federal hiring process. This comes in the wake of Obama’s recent focus on criminal justice reform, which included a summer visit with inmates at a federal prison, something no other president has done before. As Ari Melber of MSNBC reported of his decision this week:

Obama unveiled the plan on a visit to a treatment center in New Jersey, a state where Republican Gov. Chris Christie signed a ban the box bill into law last year. Hillary Clinton endorsed ban the box last week, while Republican Sen. Rand Paul also introduced similar federal legislation, with Democratic Sen. Cory Booker, to seal criminal records for non-violent offenders.

This speaks to the increasingly bipartisan nature of criminal justice reform, which is a surprising but good sign in a government divided by a fractious Republican Congress and Democratic executive branch. People from all walks of life are beginning to recognize that preventing individuals from effectively re-entering society after serving time in prison further inflames the cycle of poverty that in many cases drove criminals to use or sell drugs in the first place. And “ban the box” is just one of the many changes on the table. Focusing on treatment rather than incarceration has also gained steam, and reforms to largely arbitrary mandatory minimum sentences have gotten major hearings in Congress.

As President Obama said this week:

A lot of time, that record disqualifies you from being a full participant in our society — even if you’ve already paid your debt to society. It means millions of Americans have difficulty even getting their foot in the door to try to get a job much less actually hang on to that job. That’s bad for not only those individuals, it’s bad for our economy.

This echoes what Charles Koch wrote about overcriminalization earlier this year:

After a sentence is served, we should restore all rights to youthful and non-violent offenders, such as those involved in personal drug use violations. If ex-offenders can’t get a job, education or housing, how can we possibly expect them to have a productive life? And why should we be surprised when more than half of the people released from prison are again incarcerated within three years of their release?

With agreement like this between two warring camps, there’s hope for more meaningful and desperately needed criminal justice reforms in the near future.

This one-time tea partier is now fighting for crony capitalism alongside Nancy Pelosi

Tuesday, October 6th, 2015

Originally published at Rare

Remember the Export-Import Bank? It’s long been a federally funded, New Deal relic that subsidizes giant businesses on the taxpayers’ dime.

In a feat that’s rare in Washington, Ex-Im hasn’t been reauthorized in the approximately three months since its doors were closed as a result of a congressional failure to renew its charter thanks to tea party opposition.

Despite its erstwhile status, the specter of this corporate welfare boondoggle looms large—particularly over K Street’s lobbying firms, which would like nothing more than to see it resurrected. This is why they’ve lavished House Financial Services Committee member Stephen Fincher with donations to fuel his reelection. In fact, according to data from the Federal Election Commission, 99 percent of his campaign money comes from corporate political action committees.

And Fincher, despite being swept into Congress on the anti-corporatist tea party wave of 2010, has obliged. As the Washington Examiner’s Tim Carney reports:

Fincher, once an opponent of the Export-Import Bank —a federal agency that subsidizes foreign buyers of U.S.-made goods — now is trying to undermine his party’s leadership by teaming up with Nancy Pelosi and her party in order to reauthorize Ex-Im Bank as President Obama and his big donors in the business lobby have demanded.

This is quite a turnaround for Fincher, who said during his first run for Congress:

I may not be a polished politician, but as a lifelong farmer I know that most problems can be solved with a little common sense. When I’m elected, I’ll put that common sense to work for everyday Tennesseans, not the special interests. Trillion-dollar bailouts, bloated budgets and boondoggle spending packages aren’t working, at least for my friends and neighbors.

Fincher was right about one thing: trillion-dollar bailouts aren’t working for his friends and neighbors. But neither is he. He’s only pulled in two donations, totaling a mere $750, from his home district in west Tennessee. His 148 other donations have been from lobbying firms and big companies that leverage corporate welfare to keep their competitors out of the market.

This just goes to show how easy it is for power to corrupt. The tea party swept over Congress just six years ago, but it didn’t take Fincher long to sell out. The incentives our representatives face in Washington not only encourage this behavior; they make it virtually irresistible.

Hopefully, Fincher and Pelosi will fail in their quest to reauthorize a federally funded bank that doles out favors to the politically connected, but it will likely take the kind of organized grassroots pressure that stopped Ex-Im’s usually automatic reauthorization in the first place. Although many Republicans support Ex-Im, past leadership compromised with more conservative members on this matter. The bank’s fate under a new House speakership, the details of which are playing out this week, remains to be seen.