The economic fallout from COVID-19 is highlighting one challenge that entrepreneurs face all time: regulation stifles innovation.

Entrenched interests

You don’t have to look farther than the recipient list of Paycheck Protection Program (PPP) loan program to see how even well intentioned regulations — in this case, to protect small businesses from collapsing — end up serving entrenched interests far more than the people they purport to help. Among the list are Kanye West, Grover Norquist’s  Americans for Tax Reform Foundation, perhaps most galling, the Ayn Rand Institute.

Especially in a crisis, people look to regulations as the solution. But added regulation almost never helps the entrepreneur just starting out who wants to build a better economic future for their family. Instead, it favors the entrenched interests who can afford to lobby government officials.

Via negativa

Most often the solution is not additive. Rather, it’s what Nassim Taleb calls via negativa — it’s removing something often actually makes things more possible rather than adding another benefit to people. 

I couldn’t schedule a dentist appointment for a period of time here in Colorado, but I could go to the pot shop. That’s the result of lobbying power. That regulation is not protecting my health as much as it’s protecting the entrenched interests of the pot industry.

CEO bailout

We bailed out the airlines, and in exchange they agreed to keep all employees on until the end of September, at which point they’ll lay them off. So we essentially took Americans’ money and set it on fire by filtering the dollars through the airlines. 

Theoretically it helps employees, but only a little bit and for a little period of time. In reality it helps the CEOs who’ve made terrible decisions for a decade.

Resources

Three Felonies a Day, by Harvey Silverglate