Carpe Diem

3 examples of industry cartels using rent-seeking, regulatory capture to eliminate competition and ‘protect consumers’

1. San Francisco taxi cartel vs. the thriving and popular high-tech, on-demand ride-sharing services, from the SF Chronicle:

The state Public Utilities Commission on Wednesday fined Uber, Lyft and SideCar $20,000 each for illegally operating their high-tech taxi and limousine hailing services without the required permits. The fines come as Uber also responded to a class-action suit that claims the service is unfairly taking away fares from San Francisco taxi drivers.

This is a matter of public safety,” said Jack Hagan, the commission’s director of consumer protection and safety.

The suit against Uber, filed on behalf of two veteran drivers for Luxor Cabs, says Uber is “creating unfair business competition” by violating the strict state and city regulations that govern taxis and limousines. Uber has also been sued by cab companies in Chicago.

2. From George Will’s latest column on the ongoing case of a Benedictine monastery in Louisiana challenging the state’s “casket cartel.”

In 1914, Louisiana created the State Board of Embalmers and Funeral Directors. Its supposed purpose is to combat “infectious or communicable diseases,” but it has become yet another example of “regulatory capture,” controlled by the funeral industry it ostensibly regulates. Nine of its 10 current members are funeral directors.

In the 1960s, Louisiana made it a crime to sell “funeral merchandise” without a funeral director’s license. To get one, the monks would have to stop being monks: They would have to earn 30 hours of college credit and apprentice for a year at a licensed funeral home to acquire skills they have no intention of using. And their abbey would have to become a “funeral establishment” with a parlor accommodating 30 people and an embalming facility even though they just want to make rectangular boxes, not handle cadavers.

This law is unadulterated rent-seeking by the funeral directors’ casket-selling cartel. The law serves no sanitary purpose: Louisiana does not stipulate casket standards or even require burials to be in caskets. And Louisianans can buy caskets from out of state — from, for example, (it sells everything).

3. From Warren Meyer at the Coyote Blog:

“In legislation that reminds me of stuff from the 1990s when businesses tried to fight Internet-driven disintermediation, Hawaii is proposing to force non-Hawaiians to use a local broker to list their rental properties. Apparently local residents can still list their properties on low-cost Internet sites, but folks on the mainland (also known as “the United States”) must use a high-cost locally licensed broker, who typically charge 50% of rental fees as a commission. These type of commission rates are farcical – they imply that fully half the value of a one-week condominium stay is due to the broker, not the condo itself, its location, etc. The only way brokers can charge these fees is by maintaining a tight cartel enforced by government licensing laws.”

“Any reasonable person will look at this law and immediately know it is about crony protection of local real estate brokers. Of course, that is not what the law says. It is all about ‘consumer protection’”:

The legislature also finds that requiring nonresident owners to employ a licensed professional such as a real estate broker or salesperson or a condominium hotel operator is an important consumer protection measure. Consumers who use real estate companies, real estate brokers, real estate salespersons, or condominium hotel operators for their transient accommodation rental needs can do so with the knowledge that all money generated will flow through a client trust account, the appropriate federal tax form 990s will be generated, and accurate transient accommodations taxes and general excise taxes will be paid. Real estate companies, real estate brokers, real estate salespersons, and condominium hotel operators must comply with specific licensing and bonding requirements, thus offering additional protections for consumers.

Warren then quotes Milton Friedman:

The justification offered [by the industry for restrictions on competition] is always the same: to protect the consumer. However, the reason is demonstrated by observing who lobbies at the state legislature for the imposition or strengthening of licensure. The lobbyists are invariably representatives of the occupation in question rather than of the customers. True enough, plumbers presumably know better than anyone else what their customers need to be protected against. However, it is hard to regard altruistic concern for their customers as the primary motive behind their determined efforts to get legal power to decide who may be a plumber.

Let me add a quote from Bastiat:  “Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.”

Bottom Line: From the viewpoint of the consumer, all three examples above are anti-consumer and anti-competitive and serve primarily to further the interests of the protected industry cartels for taxis in SF, caskets in Louisiana and  real estate brokers in Hawaii, and certainly don’t protect the interests of consumers in those states.

HT: Morgan Frank for items #1 and #3.

18 thoughts on “3 examples of industry cartels using rent-seeking, regulatory capture to eliminate competition and ‘protect consumers’

  1. Cronyism has always existed. There is a famous example of the restriction of import of linens to France to protect the domestic wool and linen trade. Importation was punishable by tortuous imprisonment in the galleys or the breaking wheels. On the entreaty the corruptible judges were more than willing to comply. h/t Deirdre McCloskey – Bourgeois Dignity

  2. i think the SF taxi cos are overplaying their hand.

    go to the sfgate article and read the comments section.

    as a former SF resident, i can tell you precisely what you will find: the cab companies are hated in sf. they are slow, often do not come when you call them for a pickup, and have far too few cabs for peak times.

    the system is a nightmare. prices keep rising and quality keeps dropping.

    the consumers desperately wants uber.

    if i were uber, i’d sponsor a ballot initiative for he next election. SF does a lot of referendum based decision making this way. get on the ballot with a measure to crack open the cab cartel and it would win in a landslide.

    so long as these ridiculous laws preventing competition exist, innovation will suffer and customers will get poor service at high prices. time to change them.

  3. Well, Obama is stomping his boots and threatening people and that’s usually how we get more cronies, so expect more to come.

    There’s nothing good happening in these United States.

      • Re: Oklahoma Doctors vs. Obamacare

        These guys have reduced costs by sidestepping the parasites.

        Look for the Democrats to do everything in their power to destroy them, since the entire Democrat movement is about the empowering the parasites. They are, afterall, their base.

        • Look for the Democrats to do everything in their power to destroy them, since the entire Democrat movement is about the empowering the parasites. They are, afterall, their base“…

          You know che I rather suspect that whole setup in Oklahoma is getting the ‘Sebelius eyeball‘ right about now…

          You’re right, can’t have independent thinkers wandering off the reservation…

  4. “San Francisco taxi cartel vs. the thriving and popular high-tech, on-demand ride-sharing services.”

    That’s just one reason why California has become so poor. Unfortunately, California has been leading the nation:

    California Poverty Rate Highest In Nation

    “California has a poverty rate of 23.5 percent, the highest of any state in the country, according to figures released this week by the United States Census Bureau.

    The only other geographic region with an equivalent poverty rate is the District of Columbia, with 23.2 percent.

    The second most poverty-stricken state was Florida, at 19.5 percent.”

    • Tom,

      I’ve always wondered if the students of a teacher that is paid $150,000 score three times better than the students of a teacher paid $50,000.

        • tom-

          that is likely true. the public school teachers that get paid most tend to be the ones that are oldest. it’s a tenure system.

          i went to a private boarding school for high school. our test scores were very high (on things like sat). our teachers were paid less, not more than the public school ones and worked much harder (though they did get free housing).

          there is plenty of money in the public system to attract and keep really good teachers. we spend somehting like $11k/student/year. $220k per class of 20 seems like an absolute pile of cash. i find it impossible to believe that you cannot get a great teacher and a good classroom for that.

          pay for performance, gut the unions, and cut out all the dead wood administrators and our schools would flourish.

  5. I’ll give you a fourth. In many states, Optometry Boards make it illegal for commercial optical companies (e.g. Pearl, Lenscrafters, etc.) to hire optometrists as employees. Why? Here’s a clue. Eye examinations are about 25% less expensive in states where companies can hire optometrists directly.

  6. Mark, perhaps you can address a couple of others:

    1. Title Insurance — pricing set by the state.

    2. Garbage Haulers and the monopolies granted to them by municipalities.

    • And states that require cosmetology training and licensing for women who just want to braid hair–a skill not taught in the training.

      • But you never hear anyone run on the state level against regulations. (At least here in Tx, Perry signed increased regulation time after time, the most recent is inspections of new homes in unincorporated areas, it used to be that you could build a house in an unincorporated area and not bother the government at all). I think as the note emphasizes that one should start a movement against state and local regulation, and let it trickle up, rather than going against the federal regulations first.

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