Crony Capital

There has been an increase in business behavior lately known as regulatory capture, where in principle, government agencies are intentionally and carefully corrupted to further private interests. More recently this has evolved into something perhaps best described as “Crony Capital”.

The behavior is as such:

1. Company raises immense amounts of money to serve as a war chest.
2. Company knowingly violates laws in the markets it wishes to enter, to the surprise of regulators.
3. Company then “welcomes” and “works with” regulators to implement laws that are favorable to the company.

Often these laws are written such that a large amount of capital is needed for new entrants in the market (in example, high permit fees or large insurance requirements). This naturally cements the offending company’s market position using the local, federal or state regulatory bodies as moats to hinder further entrants.

Often the government bodies are amenable to the new regulations, as they can include permit fees or tax revenue from the companies to sweeten the deal. Uber is perhaps the best known example of a company that operates this way, though, the recent scooter-rental companies seem to be following suit.

It’s important for communities to recognize when they are being had by such games, otherwise the unintended externalities may be quite profound.

Whether it be increased evictions for new short term rental units, increased traffic from ride share companies, or in my case, a poorly-manufactured scooter frame which cost a broken arm and wrist –the effects of sweeping change can be difficult to keep balanced if not considered carefully.