America / CFPB / Economy / Regulation / Uncategorized

Too Small To Bail: Regulations Eating Away at Small Businesses

The Bada Bing food truck has been cruising the streets of Arlington, VA, schlepping their signature fare for almost two years. Their relatively inexpensive spiedies (an upstate New York specialty) and Philly-style cheesesteaks have clearly filled a market niche as their long lines and expanding twitter followers attest to. But Bada Bing and legions of other food trucks in Arlington are threatened with extinction. The local police have begun enforcing the regulation against curbside idling for more than an hour and scratch-cuisine food carts like Bada Bing need more than an hour to prep, let alone serve any customers.

Why would the local Arlington government want to kill off the food truck craze in their city? According to Bada Bing’s twitter feed the food trucks in Arlington have created over 250 jobs in the last three years, not to mention provided countless residents a tasty meal. The answer relates to the most insidious cost of government regulations – regulations are inevitably used by larger corporate interests to kill off their smaller competition.

In the micro-example of the Arlington food scene, the larger interests are the non-food truck restaurants. It seems that the change in enforcement policy has come amidst complaints from the competition. The process is easy to imagine. Established restaurateurs complain to their local councilman or the mayor – perhaps threaten a loss of political donations, the city council calls in the police chief and says he needs to get the food carts off the street to make “their constituents” happy and suddenly a rule meant to stop illegal parking is being used to kick out legitimate businesses. And less competition means less choice and higher prices for consumers.

This relatively minor example is illustrative of the larger threat of regulation-caused oligopolization that is under-discussed in politics and the media.

Take the recent Dodd-Frank regulations. The very impetus of the bill was to prevent banks from being “too big to fail” but the actual rules have caused banks that are too small, to fail. Big banks, you see, can handle hours of extra paperwork and quarterly reports to government bureaucrats – they already have large compliance offices and hundreds of lawyers whose sole job is to cope with these regulations. But small banks have to hire new compliance officers, or have existing employees take time out from working on giving loans or helping customers in order to deal with the new reams of government paperwork. James Hanby, the owner of a community bank in Oklahoma, recently maintained that compliance costs have directly led to a 23 percent decrease in his banks earnings over the last ten years. No one benefits from this loss of funds except for larger banks that can gobble up the assets and markets of the smaller banks when they eventually drown in red tape.

And to add insult to injury, these regulations have nothing to do with the reason for the financial crash in 2008 and have failed to address “too big to fail.” Two hundred regulators imbedded in JP Morgan completely failed to diagnose the recent six billion dollar loss before it occurred. If JPMorgan’s risk exposure had been larger, it would have led to yet another government bailout.

Regulations do not, as is often claimed, protect the little guy. From minor parking laws in the suburbs to the overly complicated rules of high finance, regulations protect the largest entities with the most political sway. So get your Bada Bing sandwich quick, before the government puts them out of business.