IE Business Daily Business news for the Inland Empire.
Online and phone based applications are creating hysteria for local, state and federal government agencies and bureaucrats.
It is not concern for public safety or “fairness” for traditional businesses as they are claiming in lawsuits against Uber over unregulated taxi services or paying hotel taxes for Airbnb, or the dozens of other recent startup companies competing with regulated businesses.
No, there are only two reasons that government agencies are desperately trying to reign in these unregulated companies; power and money.
Government, particularly over the last five decades, has grown increasingly larger and more invasive. Laws and regulations by government at all levels have become intertwined with every aspect of our lives in the slow and methodical effort to “keep you safer,” particularly when it comes to what used to be private transactions between parties and the use of personal private property.
Every time a new law is enacted, no matter how minor, the scope of government reach into our daily lives is expanded and our individual liberties suppressed ever so slightly.
Think the taxi that you hailed in Los Angeles is a private transaction? Taxi companies in most locations have to obtain a franchise with the local government for which they pay a heavy fee to that government agency for exclusive “rights” to operate taxi services to private individuals within their jurisdiction. Both sides, the government agency and the taxi company, benefit from this deal as taxis are voluntarily regulated and the government enriched, while the taxi company can operate without competition. At least that’s the way it used to work.
Uber, an online taxi/ride share program, has thrown a giant monkey wrench into the regulatory morass by offering to connect persons who need a ride with private individuals using their own personal vehicles anywhere in the world. The transaction is completed in seconds and the nearest vehicle arrives in minutes. No government middle man. No franchise fee passed on to customers. No overhead cost of maintaining a fleet of taxis.
Looking for a short term room rental, the latest product or antique or legal services? You name it and you can obtain it online with virtually no government regulation or taxation, just the way transactions were made 100 years ago.
This is the rub for government agencies. Government has, for the most part, regulated and taxed just about every transaction it can control, feeding and growing the public sector while providing little in the way of protection for the public, even though these regulations were put in place primarily for that purpose initially.
The reason government has been able to accomplish this is because most of these goods and services were offered only through centralized providers. Want to rent a room? Your only previous opportunity was to stay at a hotel where the transaction could be regulated and taxed. Need to purchase a new couch? You went to the local department store.
Government does not have the manpower to track online room rentals through private parties that don’t have to obtain a business license; nor can it create the technology for doing so without completely violating all of our privacy rights. Government has no capacity for tracking purchases between private parties on Craigslist, Uber, Alibaba, or the hundreds of web based companies being created to provide goods and services directly to consumer’s doorsteps.
Remember the recent battle between the State of California and Amazon over sales tax collection? Under Federal law and the United States Constitution, local and state governments have no right to regulate or tax transactions between citizens and companies that do not have a physical presence in their jurisdiction. Amazon volunteered to cooperate, it did not have to. Even today, transactions on Amazon and EBay that are from out of state vendors are excluded from state and local sales taxes.
Any effort to regulate these transactions has only come voluntarily by certain online businesses in an effort to improve their own public relations. As Amazon and EBay quickly learned, most consumers could care less.
Now “brick and mortar” businesses, hotel operators, taxi companies, and others are crying foul. These businesses benefit from government regulation that either prohibits competition through government franchises and/or impedes competition through invisible regulatory and costly market entry barriers to new, competing businesses.
The brick and mortar businesses are complaining that it is “unfair” that their products and services have the extra costs of fees, regulations, and taxes included in their prices which makes them less competitive to online and out of state providers. Local governments and politicians seem more than happy to repeat that mantra in their effort to coerce online companies to voluntarily agree to regulations and internet taxes.
But who is at fault for the competitive disadvantage that regulations and taxes place on “traditional” for-profit companies? It is of course, local, state and federal governments that created the tentacles of bureaucracy and taxation that created the new disadvantages to traditional business models, not the online competition.
The claims government made in the past that the public needed to be protected by regulation and the taxes necessary to pay for the regulators are now falling on deaf ears as consumers in the online market have learned that the internet is for the most part self-regulating and far more transparent than giant invisible corporations headquartered in major cities. The under 40 crowd knows this and the rest of the nation is beginning to catch up.
So government, which is really only concerned about revenue to provide regulatory impediments to economic growth and play gatekeeper to new businesses, is seeing revenues drop. This is not because of unfair market advantages for online retail and services. It is because government regulation and taxation have created a cheaper, better, and mostly invisible (to government) alternative.
Do not expect new online retailers and service providers to play nice like Amazon did. The public relations issues created by old guard businesses and the government agencies that control and protect them are falling on deaf ears of maturing generations of Americans and the rest of the consumers of the world.
