Lack of Regulation – How Billionaires are Made.


 Everyone knew that taxicabs cost too much in places like New York City.  There was a need that was not being filled, at least in an economical way that satisfied the people who had the need.  Normally when this is the case in a free enterprise society, people come forward to fix the problem.  They start up new taxi companies.  Perhaps they just put a sign on their cars and start driving around themselves, picking up people and getting them where they need to go.  But this was not happening?  Why?

The reason was over regulation.  In order to drive a cab in NYC, you needed to have a medallion that was issued by the city, which cost over a million dollars.  A reasonable regulator would have seen that the barrier to entry was too high and started issuing a lot more medallions, maybe even for free, but the people who had the medallions worked with the politicians (and probably bribed then through campaign contributions and promises that the taxi company’s workforce would be strongly encouraged to vote for them in the next election) to keep the number of medallions out there too low.

Everyone would say that the reason was for public safety, which is usually a good argument.  After all, you might get robbed or raped if they let just anyone pick you up and drive you around.  Also, you might get hurt in an accident because of a poor driver if just anyone was able to drive a cab.  People from the major companies were background checked and their driving skills quality controlled due to the regulations, you were told.   Of course, in NYC you would usually end up in a cab with a recent Pakistani immigrant who just came into the country and barely speaks the language who cuts people off constantly and stays on the horn the whole ride, so maybe the regulation wasn’t working that well.

              

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Enter Uber and Lyft, by calling themselves “ride sharing” and using a cell phone app to hail drivers in unmarked cars rather than putting a sign on their roof and having people wave them down from the curb, these companies were able to enter the taxicab market.  And the response from all of those people who were being “protected” by the regulations if they used a traditional taxicab?  Did they not use Uber out of fear of being hurt in an accident?  No, they quickly went over to the new service, gladly giving up the major cab companies.  The service was better and cheaper, they would tell you.  And there wasn’t a rash of robberies and rapes despite the lack of a medallion.

As a result, the founders of Uber and Lyft became billionaires very quickly.  Somehow they had found a loophole in the regulations and created a new, high-demand service.  We’ve actually moved to the point that people talk about getting an “Uber” far more often than they talk about getting a cab.  Actually, they didn’t really find a loophole – they just ignored the regulations and since the regulators didn’t know what to do with a taxi service that called themselves a “ride sharing service,” and a company that was called by an app rather than via phone or hailing at the curbside, they were left alone while the regulators discussed what to do long enough to become wildly popular.  Just within the last year or two the taxi companies have started to use the existing regulations and get new regulations passed to attack the ride sharing services and try to get them shut down since they don’t like having the competition.  They are in for a fight, however, since people like Uber and Lyft.

 


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Other internet companies like Google and Amazon took advantage of the lack or regulations to grow into the giants that they are.  Amazon took advantage of the lack of sales tax collections to make their products cheaper than those found in local stores.  Both Google and Amazon took advantage of a free web, but you can bet they’ll be the first ones to support regulations since that will help keep out competition.  You can pay for a bunch of lawyers to file a bunch of paperwork when you make millions of dollars per year, but not when you’re two guys in a garage.


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If you want to become a billionaire, look for places where there is little regulation.  Or better yet, support candidates who will cut regulations (and hold them to it once they’re in office).  Even if you aren’t willing to do the work needed to become a billionaire, or don’t have a great idea needed to propel you there, new businesses create jobs and wealth, where old monopolies tend o reduce jobs as time goes on.  Everyone is better off with less regulation.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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