Businesses use regulations to limit innovation, stifle competition
We talk often about the impact regulations have on the economy, job creation, and consumer choice and cost.
For example, research has found that a 10 percent increase in a state’s regulatory burden is associated with a 0.42% reduction in the number of small businesses and a 0.55% decrease in small business employment.
In 2017, Mississippi had 42,676 small businesses, employing 437,242 workers. Between 1999 and 2015, industry-level federal regulations increased by 3.78 percent each year. This translates to a loss of 68 small businesses and 904 jobs each year. During that time period, it represents about 15,000 jobs lost. Another report found that Mississippi has lost an estimated 13,000 jobs because of excessive licensing.
Economists have estimated that if regulation had been frozen at 1980s levels, the U.S. economy would be over $4 trillion larger than it currently is. That’s over $13,000 for every man, woman, and child in America. And regulatory accumulation has a disproportionate impact on disadvantaged populations, who can neither navigate the complexity nor afford the price of entry.
So where does our regulatory burden come from? Sure, there are government regulators who are tasked with this work. But we also have interest groups who use regulations to achieve goals that protect their market and limit competition.
Meaning, we have businesses who actually like regulation. Even if it means consumers will get a product that is inferior. Let’s look at a short-lived Trump era regulatory change that the Biden administration is working to undo concerning water and energy use limits for dishwashers.
Did you know dishwasher cycles lasted less than 70 minutes in 1983? That same wash now takes 140 minutes as manufacturers struggle to get dishes clean under today’s energy standards. And about a year ago, the Trump administration finalized regulations for a new product class concerning energy and water limits for faster dishwashers. Manufacturers would have been able to sell both, and consumers would have had the option to purchase both.
As you would imagine, environmental groups were not pleased with the proposed regulations. But neither were trade associations representing dishwashers.
“Not only would investments in efficiency innovation be stranded, but also new investments would be required in order to design dishwashers that could fall into the new product class,” wrote the Association of Home Appliance Manufacturers in an October 2019 public comment.
Manufacturers, assuming customers liked the faster dishwashers, which we have reason to believe they would, would need to invest in the new products. Or someone else would. So instead of opening the door to competition, manufacturers used the government to ban better dishwashers.
For a family of six like mine that tends to use a dish or two, we could have used a quicker dishwasher. The irony is that because of this regulation, in the name of saving the planet, we often have to rely on handwashing dishes, which requires 140% of the energy use and 350% of the water use of a dishwasher. Our other go-to option is disposable plates and utensils that we soon throw away in the trash.
When you look at a regulation and you wonder where it came from, you often don’t need to look further than that industry. Incumbents will be protected. And consumers will lose.