STOSSEL: Competition is the best regulator for business

Instinctively, we look for people’s motives. We need to know whom we can trust and whom we can’t. We’re especially skeptical of business because we know business wants our money.

It took me too long to understand that business’s desire for profit is a good thing. To get our money, businesses—if they can’t look to the government for favors—need to give us what we want. Then they must make continuous improvements and do it better than the competition does.

That competition is enough to protect consumers. But that’s not intuitive. It’s intuitive to assume that competition isn’t really consumer protection and that experts at the FDA, FTC, DEA, FCC, CPSC, OSHA and so on must protect us. These experts consult “responsible” businessmen for advice on creating rules to make sure businesses meets minimum “standards.”

Unfortunately, this standardization stops innovation.

We are imprinted to be wary of newcomers, strangers. Newcomers by definition are less experienced. Maybe they’ll do something unsafe or dishonest! We don’t want government to stop them from doing business—we just want consumers protected! Governments claim to do that by licensing businesses.

People like the idea of licensing. We license drivers. We license dogs. It seems prudent. People naively think this government seal of approval makes us safer.

This naivete is used to justify all sorts of rules that kill competition.

Las Vegas regulators require anyone who wants to start a limousine business to prove his new business is needed and, worse, will not “adversely affect other carriers.” But every new business intends to beat its competitors. Las Vegas’ anticompetitive licensing rules mean limo customers pay more.

In Nashville, Tenn., regulators ruled it illegal for a limo to charge less than $45 a ride. One entrepreneur had won customers by charging half that, but the new regulations mean the established car service businesses no longer have to worry about him.

Perhaps Nashville’s and Vegas’ regulators really believe “this is an area where the free market doesn’t work,” as the manager of the Nevada Transportation Services Authority put it. But it’s fishy that charging big fees for licenses just happens to be an effective shakedown operation. Vegas cab and limousine businesses give “substantial” donations to Vegas-area political candidates, according to the Las Vegas Sun.

Our big government has justified its existence (at least since the Progressive Era) by claiming it is a “countervailing influence” to corporate power—when it is, in fact, incestuously entwined with corporations.

The list of business activities that government insists on licensing, supposedly for our sake, includes hair braiders in Mississippi, wooden-casket makers and florists in Louisiana and even yoga instructors in Virginia.

Established businesses always try to use government to handcuff competition. When margarine was developed, the dairy industry got Wisconsin legislators to pass a law making margarine illegal. Several states ruled that margarine was “deceptive,” since it might be mistaken for butter. Some required a bright pink dye be added to make margarine look different. An “oleomargarine bootlegger” was thrown in the U.S. Penitentiary at Leavenworth.

When supermarkets were invented, small grocers tried to ban them. “A&P will dominate the grocery business and destroy Main Street,” the grocers claimed. Minnesota legislators responded by passing a law that forbade supermarkets to put food “on sale.”

Established capitalists are often capitalism’s biggest enemies.

I used to believe that licensing doctors and lawyers protected consumers, but now I realize that licensing is always an expensive restraint of trade. It certainly hasn’t barred quacks and shysters.

Licensing is unnecessary. It creates a false sense of security, raises costs, stifles innovation and takes away consumer choice.

I don’t deny that there is fraud in business. I won Emmys for exposing it. Fraud is one of three crimes that must be policed and punished for the market to function (theft and physical assault are the others). Once that’s done, however, as long as there is open competition, honesty pretty much takes care of itself.

Free competition—the striving for a good reputation—protects consumers better than government ever will.•

• Stossel is an author, and hosts “Stossel” on Fox Business Network. Send comments on this column to ibjedit@ibj.com.