Wealth & Poverty Review Who Benefits from a Heavily Regulated Economy?


There are regulations that make sense. I’m grateful for laws
that don’t allow children’s toys containing lead in the market. That’s a good
call. I’m less grateful for laws that shut
down the lemonade stands
of entrepreneurial children. I’m concerned by
regulatory authorities like the Consumer
Financial Protection Buruea
that works behind closed doors and outside of Congressional oversight. Such laws and powers are instituted, at least rhetorically, for the
sake of the everyday consumer
but not necessarily to
his benefit.

Surowiecki writes in The New Yorker
about the regulation of the automobile
industry that prohibits or restricts car manufacturers from selling their
product directly to consumers. Tesla is shaking up an industry standard in operating without middlemen car dealers, and the dealers aren’t happy. In some
states, they’ve lobbied their governments to ban Tesla from selling their cars
directly in order to protect the dealers’ profitable–and unnecessary–position in the industry.

Writes Surowiecki:

Of course, no one involved presents it like this. State
legislators insist that the status quo benefits consumers: the relevant Florida
statute claims to be “providing consumer protection and fair trade.” We’re told
that only independent dealers can guarantee service and warranty coverage. But
look at the Apple Store: manufacturer-owned, and yet famous for the customer
service and tech support provided at the Genius Bar. And while the argument is
sometimes made that the use of independent dealers lowers prices, it’s hard to
see how forcing Tesla to sell its cars through middlemen would make them
cheaper. Indeed, a series of studies in the nineteen-eighties found that the
various rules protecting dealers led to higher prices–six per cent higher,
according to an estimate by the Federal Trade Commission. And in 2001 the
Consumer Federation of America estimated that restrictive franchise laws could
be costing consumers as much as twenty billion dollars a year. In any case, no
one expects dealers to disappear. The question is whether automakers should be
legally banned from trying out new ways to sell their cars.

This is just one example of the many regulations that
purport to protect the consumer while actually operating at the consumer’s
expense. It lends to a climate that “discourages innovation, raises prices, and
makes life hard for people trying to start new businesses–or even just get a
new job.” Next time you think you need protecting, think twice. 

Image: Wikimedia Commons