Corporations love regulations—and so do politicians from both political parties. Big firms can allocate resources such as personnel and capital to work through complex regulations, but small firms cannot. The reason so many companies have headquarters in Washington, DC is because it is where political profit is made by lobbying the government instead of providing a service to consumers. In the realm of political profit, the company with the most money, lobbyists, and connections wins, and small businesses and consumers are left to fend for themselves in the “free market.” Regulations are used by big corporations and politicians at the expense of consumers and small businesses.
Corporations use regulations to retain and expand their market share in their industry. Politicians pass regulations at the behest of corporations and get rewarded with campaign contributions. For example, Dodd-Frank was viewed harshly by the banking community, but has it really been so bad for them? Since the implementation of Dodd-Frank, there has been a dramatic decrease in the number of small independent banks; over 800 independent banking institutions closed from 2007 to 2013. In an economic brief conducted by the Federal Reserve Bank of Richmond titled Explaining the Decline in the Number of Banks since the Great Recession, economists found:
New [bank] entries are more likely when there are fewer regulatory restrictions. After the financial crisis, the number of new banking regulations increased with the passage of legislation such as the Dodd-Frank Act. Such regulations may be particularly burdensome for small banks that are just getting started.
In another paper titled Reforming the Regulation of Community Banks After Dodd-Frank, economists from the Federal Reserve Bank of Saint Louis found:
If the patterns of consolidation continue and community banks are forced to merge, consolidate, or go out of business because of the cumulative regulatory burden, one result will be an even greater concentration of assets on the books of the “too big to fail” banks.
Even Elizabeth Warren and Bernie Sanders admit that Dodd-Frank has failed by lamenting how “too big to fail” banks are bigger than when the recession began. Their flawed solution, however, is to fix failed regulation with more regulations.
Regulations increase the cost to produce goods and services, and those costs are passed onto the consumer. Increases in regulation also strangle innovation. Why open a small business when there are thousands of regulations on the federal code? The Small Business Association’s website cites advertising, marketing, labor, employment laws among several others that must be followed before starting one’s business.
The more cost it takes to open a business, the more risk. And the more risk, the less people are going to open businesses and innovate. That is why corporations and politicians love regulations, because it keeps competitors out and protects their market shares. All to the detriment of small businesses and consumers.