The Inevitable Lifecycle of Government Regulation Benefiting the Very Companies Whose Actions Triggered It

Step 1:  Large, high-profile company has business practice that ticks lots of people off -- e.g. Facebook slammed for selling user data to Cambridge Analytica

Step 2:  Regulation results -- e.g. European GDPR (though it predates the most recent Facebook snafu, it was triggered by similar outrages in the past we have forgotten by now so I use the more recent example)

Step 3:  Large, high-profile companies that triggered the regulation by their actions in the first place are the major beneficiaries (because they have the scale and power to comply the easiest).

GDPR, the European Union’s new privacy law, is drawing advertising money toward Google’s online-ad services and away from competitors that are straining to show they’re complying with the sweeping regulation.

The reason: the Alphabet Inc. ad giant is gathering individuals’ consent for targeted advertising at far higher rates than many competing online-ad services, early data show. That means the new law, the General Data Protection Regulation, is reinforcing—at least initially—the strength of the biggest online-ad players, led by Google and Facebook Inc.

This is utterly predictable, so much so that many folks were predicting exactly this outcome months ago.

My "favorite" example of this phenomenon is toy regulation that was triggered a decade ago by a massive scandal and subsequent recall by toy giant Mattel of toys with lead paint sourced from China.

Remember the sloppily written "for the children" toy testing law that went into effect last year? The Consumer Product Safety Improvement Act (CPSIA) requires third-party testing of nearly every object intended for a child's use, and was passed in response to several toy recalls in 2007 for lead and other chemicals. Six of those recalls were on toys made by Mattel, or its subsidiary Fisher Price.

Small toymakers were blindsided by the expensive requirement, which made no exception for small domestic companies working with materials that posed no threat. Makers of books, jewelry, and clothes for kids were also caught in the net. Enforcement of the law was delayed by a year—that grace period ended last week—and many particular exceptions have been carved out, but despite an outcry, there has been no wholesale re-evaluation of the law. Once might think that large toy manufacturers would have made common cause with the little guys begging for mercy. After all, Mattel also stood to gain if the law was repealed, right?

Turns out, when Mattel got lemons, it decided to make lead-tainted lemonade (leadonade?). As luck would have it, Mattel already operates several of its own toy testing labs, including those in Mexico, China, Malaysia, Indonesia and California.

The million bucks was well spent, as Mattel gained approval late last week to test its own toys in the sites listed above—just as the window for delayed enforcement closed.

Instead of winding up hurting, Mattel now has a cost advantage on mandatory testing, and a handy new government-sponsored barrier to entry for its competitors.

9 Comments

  1. smilerz:

    Facebook didn't sell them the data - framing the issue that way has to be my biggest pet peeve as it is highly misleading.

  2. sean2829:

    The Affordable Care Act (ACA) is likely the best example. Big insurance companies are the biggest beneficiaries of the regulations.

  3. TruthisaPeskyThing:

    The profits of big insurances soared under ACA. Is it a surprised that insurance companies are the biggest complainers when Trump wants to give consumers more choice and more avenues to reduce their costs?

  4. TeeJaw:

    Quite right.

    It all began with the creation of the Interstate Commerce Commission in 1887. Gabriel Kolko (1932-2014), in his great book Railroads and Regulation, showed how regulatory agencies and corporate power created a pattern of interdependence between economic and political power that set a precedent for government regulation of the economy in the twentieth century.

    The Motor Carrier Act of 1935 was the worst expression of that strategy. Thankfully, we got rid of that freedom-killing monster.

  5. TeeJaw:

    Obamacare basically gave insurance companies access to the U.S. Treasury with all the “reimbursements” they were able to get. Good work if you can get it.

  6. sean2829:

    Medicaid and Medicare patients. That means increased prices on private healthcare plans to make up for those losses. Insurance premiums are still rising much faster than inflation but deductibles have skyrocketed making people with private insurance reluctant to see their doctors so fewer claims. The result is anyone whose on an employer sponsored private healthcare plan is subsidizing the ACA with little regard to their ability to pay so its a regressive tax. The insurance companies like this arrangement because the ACA limits their profit to ~ 7% of revenue. By funneling Medicare and Medicaid transfer payments through their customers premiums they increase revenue and can earn substantially more profit. They now have a vested interest in the inefficiency of the healthcare system.Medicaid and Medicare patients. That means increased prices on private healthcare plans to make up for those losses. Insurance premiums are still rising much faster than inflation but deductibles have skyrocketed making people with private insurance reluctant to see their doctors so fewer claims. The result is anyone whose on an employer sponsored private healthcare plan is subsidizing the ACA with little regard to their ability to pay so its a regressive tax. The insurance companies like this arrangement because the ACA limits their profit to ~ 7% of revenue. By funneling Medicare and Medicaid transfer payments through their customers premiums they increase revenue and can earn substantially more profit. They now have a vested interest in the inefficiency of the healthcare system.

  7. sean2829:

    It also gave them access to the wages of everyone with employer provided health insurance since Medicaid and Medicare forces health care providers to provide care at less than 80% of the cost. The losses are made up from people with private insurance who are charged up to 70% more than what the government reimburses. These inflated rates are actually great for insurance providers since their profits are limited to ~7% of revenue so they make a profit on the losses the healthcare providers by charging higher rates for private plans.

  8. Mike Powers:

    What always amazes me (and was heavily on display during the CPSIA bullshit) is the number of people who just assume that they don't have to worry because the rules don't apply to them. "Oh, I'm too small." "Oh, It's too hard to comply." "Oh, I don't do that kind of thing." "Oh, they don't mean ME, they mean CHINA." "Oh well I'll just put a label on it." "Oh, that's only if I want to sell to big stores."

    And even when you tell them about things like Raw Milk, things that actually happened, they assume that you're leaving out a bunch of details (or just straight-up lying, making things up.) You say "armed federal agents came onto this person's property and took the milk they were selling to their friends", and they figure that the people were just being assholes and arguing and fighting about it, and that if only everyone had sat down and had a good strong *empathetic* conversation then everybody would have left happy with a big glass of nice milk.