8 Industries Handicapped By Big Government
Free market activists tend to dislike the government. Many who lobby for increased regulations often cite their concerns about expanding corporate power and influence or monopolization. What happens when you combine them?
The answer is government monopolies, or government-backed monopolies. This is when the state itself takes over an entire industry, and rids it of all competition with the exception of itself. It can also mean that the industry in question is put into the hands of private companies, who will also operate with little, if any, competition. These monopolies exist all around us and have for generations. Recently, Jean Tirole was awarded the Nobel Prize in Economics for his analysis of market power and regulation. His work has brought this very subject to the forefront of the minds of many in the business and economics world, and proves that constant government overreach is something many are concerned about and are highly critical of.
Many of these government-instituted monopolies are not as terrible as they might seem, and have been put into place for sound reasoning. Not only that, but most industries today — even if they are under government or public control — still offer at least some alternative choice. But things like public utilities and national parks are built with the public’s money for the benefit of the public, and putting them into the hands of a private businesses might not sit well with many people.
Naturally, many of these monopolies are relegated to specific states or cities. Some states have very strict laws regarding liquor sales, while others have privately-owned utility companies. Still other industries are not really controlled by the government, but regulatory framework essentially puts the blanket of state control over them through licensing and other such measures.
While some industries are likely better off being regulated to some degree, others could benefit from a loosening of regulations. But, as with any monopoly, the powers that be aren’t likely to relinquish power very easily. However, there are new threats and challenges popping up all the time, and it’s likely a matter of when — not if — some of these industries are freed up.
Read on to see eight industries that are operating under total or partial government monopolization.
It’s not something that many people think about, but the parks system is completely under state control. There are private parks out there — found in gated communities and along waterfronts in many cities — but true national treasures are usually located on federally-controlled lands. National and state parks are run by the government, although some aspects of their administration is often contracted out, such as food service or hospitality. Still, it could possibly be more efficient to have them privately run, but there would be some downsides to that as well.
By and large, the parks industry is mostly run by the public sector, but that doesn’t necessarily mean that has led to the most ideal market conditions. While quantifying the actual revenues for every municipal public space is next to impossible, a quick glance at our National Parks can give us some insight. In 2013, the National Park system generated more than $26 billion, while supplying the economy with 243,000 jobs. More than 282 million people visited a National Park during 2012. In all, the government owns more than a quarter of all land in the United States, around 640 million acres, which might be put to better use in the hands of the private sector. Of course, that’s only National Parks, and there are plenty of reasons why handing them off to private interests may not be the best idea.
2. Passenger Rail
One of the most notorious government monopolies is within the passenger rail industry, specifically with Amtrak. Amtrak is the name under which the National Railroad Passenger Corporation does business. The company itself is publicly-funded and operated as a for-profit enterprise, although they have been losing money for years. Amtrak makes billions in revenue, as it attracted more than 30 million passengers in 2013 alone (for comparison, Mozambique carried 108 million during 2011), but is wildly outdated and inefficient compared to other rail systems across the world. This is an industry that would likely benefit greatly not only from deregulation, but also from significant infrastructure investment.
Of course, there is a difference between passenger and freight rail services. Freight, as opposed to passenger rail, is largely left to private companies. On that side of the equation, the Federal Railroad Administration says that the freight rail industry supplies the economy with 221,000 jobs, 140,000 miles of track and $60 billion in annual revenues. For comparison, Amtrak generated $2.877 billion in revenues during fiscal year 2013, and had expenditures of more than $4 billion. There is an immense rift between the two industries, with freight obviously being much more well-run.
If there is one industry that has benefited from regulation over the years, it’s the taxi business. While not really a government monopoly per se, the private companies that dominate the industry are granted a monopoly through regulation and licensing. The industry is seemingly losing its power, though, as companies like Uber and Lyft have come in and completely shaken things up. There are valid arguments that the industry is in dire need of some additional competition, although research has shown that the industry itself looks to be set up in a way that protects the system from competition. It appears that the level of regulation will be decided by individual states and cities going into the future as the government-backed monopoly in the taxi industry slowly erodes.
It’s also important to note that many people want regulation on some level, to ensure safety and accountability. But, as with most things, too much protectionism and regulation can lead to problems. A recent report looking into the taxi industry in Boston found that the current cab system isn’t even capturing all of the demand in that particular city.
“There is unmet demand during peak hours. Regardless of what neighborhood needs service, many report that during rush hour, late nights on weekends, and during inclement weather, it is difficult to get a cab either via street hail or through the dispatch…. This unmet demand for taxi service has partially been accommodated by transportation network companies (such as Uber) that have partnerships with taxi drivers and livery vehicle drivers. However, it is difficult to discern how large this potential market is. Some customers use TNCs such as Uber or Lyft, other customers, in particular the elderly, may not have other options,” the report says.
The question going forward is whether or not companies like Uber will be able to actually change the industry, or succumb to many of the same pitfalls that existing taxi systems do. The company is already being called highly-overvalued by some analysts, perhaps with many people placing too much faith in the budding private system. But it’s a system that is in desperate need of a shake-up, and privatization may be the key.
Another industry which is not exactly a government monopoly, but close, is education. Many people believe, and justifiably so, that education should not be run as a for-profit enterprise. However, others feel that the only way to improve the system through competition and free market practices is to steer it in that direction. Most schools — i.e., public schools — are run by the state, and have a multitude of problems. There are plenty of private schools out there as an option, and people can choose to homeschool their children as well. Education is a tricky problem to try and tackle, but as it stands right now, the government controls most of it, which may be the genesis of many issues in the first place. The public school system serves nearly 50 million students in elementary and secondary schools, while a mere five million attend private schools, to give you an idea of how the industry looks.
There has been some pushback in recent years against private education, especially in the for-profit college world. Between 1998 and 2008, enrollment in private, for-profit colleges increased 225 percent to around two and a half million students, although many people have come to the conclusion that these schools are a rip off. And that’s the main issue with the industry — it doesn’t appear to be trustworthy. As with anything, privatizing the school system has pros and cons, and there are definite kinks to work out, especially in the for-profit market. But cherry-picking the best qualities of public and private schools, and allowing the market to work its magic, could benefit everyone.
Perhaps the government monopoly that most of the general public can sympathize the most with is in public utilities. Again, there are many privately-owned utility companies out there, so this doesn’t apply to the entire country. But many places use publicly-financed companies to supply communities with water and electricity. Things do get a bit wobbly when it comes to phone and data lines, as many people feel the Internet should be added to the list of public utilities, but it’s unclear where that fight will go. There are definite advantages to having things like water and power stay out of private hands, but as with anything, there are also downfalls.
6. Liquor Sales
Alcohol sales are heavily regulated in some places, and more loosely in others. States like Utah, while ironically having one of the more conservative populations, also have some of the strictest rules concerning liquor sales in the country. There are many reasons why people want stiff regulations, mostly having to do with public safety. Yet others feel that adults should be free to make their own choices about liquor purchases, and businesses should be able to cater to that demand. Liquor laws are weird, but there are states instituting change. For example, Washington state deregulated the liquor industry a few years ago, taking it out of the state’s hands and allowing independent retailers to sell it for themselves. It wasn’t a huge step, but it’s proof that it is possible to shrug off the government and free up industry.
7. Postal Service
With the exception of maybe Amtrak, the U.S. Postal Service may be the most widely known government monopoly out there. The USPS has been having plenty of problems over the years as well, hemorrhaging money and laying off lots of employees while cutting service hours. But it’s not without competition from private companies like UPS, FedEX, and DHL. Still, the postal service provides one of the greatest values out there. Where else can you send something from California to Maine for just the cost of a stamp? But that right there is likely why the postal service is in trouble. Would privatizing the USPS help? To some degree, probably. Opening the industry to a little more competition may be worthy of consideration.
It may not be fair to add this on to the list, but the fact is that marijuana and cannabis suffers greatly from government interference. The fact that it is illegal in the first place is what gives it any value. If people could grow it in their backyards, drug dealers would be out of a job. We’re also seeing how different regulatory approaches are affecting the markets in Colorado and Washington. So far, too much state interference has led to a scarce supply, pushing people back to the black market and causing the state to miss out on additional tax revenues. While not necessarily a monopoly per se, the incredibly over-regulated marijuana industry suffers as a result of government red tape.
While there really is no telling how big the market, specifically the black market for marijuana is, this is an industry that we will see evolve right before our eyes in coming years. Naturally, local governments (and the feds, whenever they decide to speak up on the subject) will keep things on lock down as it blossoms and grows. Over time, more regulatory barriers are apt to fall and make the industry even more wide open. With Colorado and Washington having recently been joined by Oregon, Alaska and Washington D.C. on the legalization bandwagon, even more states — and therefore more support and free market experiments — the marijuana trade should take some interesting turns in the next few years.
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