Snow Job in New Jersey: Crony Capitalism Comes in Many Sizes

23 02 2015

The Wall Street Journal recently ran a piece called Regulation is Good for Goldman Sachs. It was occasioned by remarks made by the firm’s CEO in a recent conference call with investors. During the call, Lloyd Blankfein suggested that the burden of new government regulations was a net benefit to the bank, since its competitors were less able to carry the associated costs.  “More intense regulatory and technology requirements have raised the barriers to entry higher than at any other time in modern history,” said Mr. Blankfein. “This is an expensive business to be in, if you don’t have the market share in scale. Consider the numerous business exits that have been announced by our peers as they reassessed their competitive positioning and relative returns.”

This article is a reminder of the sheer importance of regulatory capture in explaining the emergence of crony capitalism and concentrations of economic power. Regulations that are often intended to protect the weak and the powerless often end up being perverted into measures that enrich particular groups of wealthy individuals at the expense of both other firms and society as a whole.

Spare a thought, though, for the impact of regulation on the degree of competition in humbler sections of the economy. Regulation can protect incumbents and reduce competition in banking, but it can also do so in the world of snow removal, a type of economic activity that is rarely if ever discussed in the financial press.  Banks and their regulators are always in the media spotlight.  Relative to their share of GDP, the zillions of obscure guys who do the vitally important work of removing snow get fewer column inches, at least most of the time.

The New York Times reports that two New Jersey teenagers have been stopped by the police from offering snow removal services to their neighbours.  Needless to say, this sort of harassment will cause future would-be entrepreneurs to think twice before handing out snow-removal flyers to their neighbours. Unfortunately, the Times story does not reveal whether the reporter investigated the possibility that the cops who stopped the teenagers are linked to any of the existing snow removal players. It may be that the cops have friends who are incumbents in this industry, although they also may simply have been on a little power trip.

For the impact of excessive occupational licensing in the United States, see this piece by Matt Yglesias. The website of the Cato Institute’s Police Misconduct project is also worth reading.

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