Last week, I wrote a piece for Bloomberg about how businesses do not like competition and have been using the government for years to impose rules and regulations on their competitors to hurt them or to get special favors and tax treatments.
Think about it. Competition is good for consumers because it keeps prices low while increasing the quality and choices of products and services. Yet competition is hard work for businesses. They have to fight for customers by innovating and evolving in ways that consumers demand.
To avoid the gritty work of fighting it out in a free market, organized private interests — such as Louisiana’s licensed funeral directors — lobby the government for special regulations, preferential tax treatment and laws that keep out competition. They lobby lawmakers to constrain the same free markets in which they originally achieved success.
This practice has been around for as long as there have been businesses and governments.
I got two kinds of feedback. First, many business owners wrote to say that I was right, that things were worse than I thought, or that since the government was there to distribute favors, why not try to benefit from them, since others would if they didn’t? Second, lots of people wrote that it was a statement about how free markets are. Of course, that’s not what I think my piece shows. Rather, it is a statement on how we don’t have free markets in this country because of the unhealthy marriage between government and businesses.
Here is a good Reason TV video that illustrates perfectly this unhealthy union. The LAPD has been hassling food carts recently. Why? Because they are competition to restaurants and those guys don’t like it.
Adam Smith writes about it in the "Wealth of Nations."
Reply to this commentLinkReport AbuseWhen businesses start out the are for a free market. When they become the biggest they want the crown to control their rivals and give them prefered treatment. So Adam Smith writes about it as old news 300 years ago.
At my former employer (a massive multinational digital security company) our VP of government affairs declared in a company meeting broadcast to all of North America the following:
His goal and the goal of his department was to create through lobbying and promoting regulation as unfavorable a business climate for his competitors as he could possibly manage, while preventing any regulation from affecting our specific company. The worst outcome that could still be tolerated for his department was a level competitive playing field.
Reply to this commentLinkReport AbuseI love food carts as a wedge issue to use on urbanites. I've encountered so many reflexively leftist city-dwellers who are largely unexposed to free market rhetoric, and who are sometimes gob-smacked by reality when they see the ugly side of statism.
Now, if we can just get more of them to watch these videos...
Reply to this commentLinkReport Abusebtw, you can see the same thing playing out with medical marijuana growers in California... the older establishments with storefronts are getting serious price competition from mobile vendors who will mail you your prescription or deliver it to your house, and they want the state to regulate the mobile vendors out of business.
Reply to this commentLinkReport AbuseJerry Pournelle pointed this out in his "Sparta" trilogy, he said (approx.)
Some of the worst enemies of capitalism are successful capitalists.
Reply to this commentLinkReport AbuseSpot on, Veronique. Like most of the problems in our political economy, this one can be traced to the twin vices of rent-seeking and of seeking to avoid, shift, or defer costs and consequences. Sovereign debt crisis anyone?
Reply to this commentLinkReport AbuseThe old adage 'libertarianism is applied autism' strikes again. The stationary restaurants are the ones paying property tax so that the curbs which the 'taco trucks' park at. In essence they subsidize their competition.
Listen, you guys want unregulated food vendors, move to Mexico where you can eat all the bacon wrapped hotdog you can buy from the 'tiny businesses' that are push carts. You'll soon discover how this sort of shallow 'liberty' leads to a very low quality of life.
Reply to this commentLinkReport AbuseI think I'll set up a pushcart outside the entrance of Harvard, and sell Harvard degrees for less than the big place charges. Faster service, too.
The next step will be to recruit workers to do the same at Yale, Princeton, Stanford, Notre Dame, UC Berkeley, Cornell, and so forth.
I realize that it might be hard to find willing workers for these jobs. So, abolish the minimum wage! If I can pay the pushcart vendors less,then you will be able to save money on your Harvard degree. Why pay $25 when you can pay only $20, I say.
Reply to this commentLinkReport AbuseIt may not have been the point of Veronique's article to show that this is the natural consequence of Free Markets, but this is still a nasty fact that we free enterprise proponents need to deal with.
It is a fact of economics that most resources get distributed on a curve. This is where economies of scale come from. At a certain point, a business accumulates enough of the right strategic resources that they can operate at a significant advantage to competitors. Usually this isn't a big problem, because Disruptive Innovations can "outflank" their dominant position.
However, there is one resource that cannot be outflanked, and that's the means to use force. In an anarchy (go to Reason and you cannot miss all the Anarchist Libertarians) the danger is that a single power will accumulate the means to use force and then use it to wreck the market. In a democracy, the government is the means to use force and so the Market Wreckers capture the government.
There needs to be a balance here, and people like the Reason crew need to recognize and deal with it.
Reply to this commentLinkReport AbuseLike everything, everything in moderation.
We don't want to have every street corner in the city occupied by food trucks. If there is no regulation, that's what will happen. And food poisoning will increase, as marginal vendors see a way to make a quick buck.
OTOH, an outright ban eliminates an option for the busy downtown denizen for a quick bite. He may not have enough time to get a leisurely meal at a restaurant, but might well grab a bite from a hot dog vendor.
And restaurants have fixed costs that the food truck vendor doesn't such as property tax or rent.
Reply to this commentLinkReport AbuseDevils advocate: you're a restaurant owner, you pay rent for an "a", "b" or "c" location. Your restaurant is permanent brick and mortar, adding to the community (presumably). Now, anybody can drop his business right in front of yours at a moments notice?
I love food trucks and capitalism but this issue isn't as black and white as it would seem. I think it's more of a community issue.
But I should mention, as a small business owner, I agree with the general theme that big businesses, with access to lobbyists and politicians, do EVERYTHING that they can to make life difficult for the smaller concerns. To the point that it's the ONLY explanation for 1/2 of the manure they put into their "legislation". A 1099 for EVERY vendor you spend over $600 with is so remarkable in its stupidity that's it's not to be believed.
Reply to this commentLinkReport AbuseIt's rather apparent that most of the commenters didn't read the video, especially the ones commenting about food trucks being unregulated.
These folks require 3 separate food safety and operation permits - but the cops are hassling them because they have copies of the documents instead of the originals. Hassling them because they park too close to a curb. Basically, just hassling them however they can.
It's not about regulation vs. no regulation... it's about one group using its influence to get the State to make life harder for the group's competitors.
Reply to this commentLinkReport AbuseSeems like a good example of why Conservative are free-market not "pro-business" as our opponents like to say.
BUT, @SouthOC is right. If you want to sell on the curb, then my restaurant behind you is subsidizing your taxes and lowering your fixed costs giving you a competitive advantage. And, in return for this you block my storefront and interfere with my advertising.
It is no different than my using NRO's servers to start my own, competing, conservative online journal, and inserting "popup" ads over the NATIONAL REVIEW banner, but not asking or paying NRO. As long as we're going to forced to have taxes and fees, then the carts license fees should be increased to account for this fact.
Like @Spool32, I worked at a large IT company that had a large government presence. Their whole purpose in life is to eliminate competition so they can create a monopoly to drive up prices. Defense contractors teach their BD staff how to get close to senior bureaucrats, and they all hire as many retired Generals as they can.
Don't even get me started on the racket known as "small business contracting"...it's a joke.
Reply to this commentLinkReport AbuseWhen the auto companies collapsed and were bailed out, we saw this in action with the dealerships.
Reply to this commentLinkReport AbuseThey have already rigged the laws, state by state, in their favor so that the auto companies are stuck with them, can't sell cars by any other channel, and have to pay individual dealers large sums to go away. This has led to a lot of dead weight that has to be borne by the auto companies in marketing and support costs, and has allowed later entrants (in other words, the Japanese) to set up more efficient dealer networks, where each dealer can sell more cars, and make more money. These dealerships have naturally attracted more investment and better salesmen, which is another competitive disadvantage for the Detroit guys.
Then, when thousands lost their jobs, executives were being thrown out the windows of the Renaissance Center, innumerable support businesses were hurt or killed, and the American taxpayer ponied up $60 billion or so, the dealerships used their clout to get Congress to pass a law exempting them from any of the pain. It was sheer luck that Obama didn't sign the thing, but the dealers still got an appeals process and a second chance that wasn't given to anyone else.
Now, that's effective rent-seeking!
Anyone who has worked in the plan and spec market knows this. Get in tight with the government engineer, write the spec with the engineer so your part has something no one elses does, get that spec out on the street and VOILA, all the contractors have to come to you and you get that government contract at the price you demanded!
Reply to this commentLinkReport AbuseBusinesses pay property taxes, sure. But they also are building equity in their business. Trucks and carts depreciate in value. Doesn't that seem fair to you?
Reply to this commentLinkReport AbuseThere is no 'right' for restaurants to stay in business. If some people want to eat from food carts, and others want a sit-down meal, both business types will exist. If we end up with fewer sit-down restaurants and more carts, how exactly are we worse off? There's still sales tax from the carts, and cities can charge a permit fee on carts to make up for lost property tax revenue. Meanwhile, cheaper food from the reduction in sit-down operations would free up funds for other things. New/expanding businesses would eventually fill the restaurant space. Or, maybe, the carts wouldn't actually have that big an impact.
There is plenty of room for reasonable regulation. So often in these stories, it's not even a matter of a cart parking right in front of a restaurant; it can be many hundreds of feet away, or sometimes anywhere at all, and still get shut down by sweeping bans.
The knee-jerk comments reacting to a strawman version of Reason's argument are highly amusing. Reason wants limited government, not anarchism.
Reply to this commentLinkReport AbuseI live in Los Angeles, and I'd like to comment on the Reason video. It exaggerates because the facts don't really prove the point it is trying to make.
The video implies that the LAPD was on an witch hunt city-wide, which isn't true. It got a lot of local weblog attention here, but the police were only "hassling" food trucks on behalf of a restaurant on one specific block near the La Brea Tar Pits, not city-wide. There are illegal street vendors (not permitted catering trucks - unlicensed illegal aliens with jury-rigged tool carts) on every other corner of my part of town, and the LAPD does nothing about them,ever, even though it is the # citizen complaint.
It then tacks on the "Danger Dog" issue - it's against the health code to serve bacon wrapped hot dogs unless the cart has certain features like hot & cold running water - to make it seem like there's a broader war on street vending. It's a separate issue, and not related. It may be a stupid regulation (I think it is), but it's not a case of the police doing the bidding of restaurateurs who want to eliminate competitors. It's a case of the health department doing what it is mandated to do.
The video also ignores that street vending represents a sort of tragedy of the commons, as others have noted.
Reply to this commentLinkReport AbuseAs a starting point, we should understand that some regulations are going to tilt the playing field de facto, whereas others are likely to have been lobbied for by competing business interests (see FedEx vs. UPS).
On the other hand, you have subsidies, which includes preferential tax treatment. This category is much more egregious to me, especially since I view using the tax code to change behavior as one of the worst kinds of policy known to man.
As for regulation, though, it's often difficult to reveal a law as the effect of business influence, but we should do whatever we can, as citizens, to bring transparency. That said, I wouldn't be surprised if Reason was playing a story up to fight regulation in general. And sometimes regulations have broad public support beyond the business interests involved.
Reply to this commentLinkReport AbuseI think these food carts deserve to be hassled, for reasons stated by Victor Davis Hanson and reiterated by Thomas Sowell on the homepage.
Restaurants in Cali are burdened by overregulation, whereas these food carts are exempt from basic health standards. Those who obey the law suffer, those who circumvent it thrive.
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