Regulation: Protecting Incumbents and Suppressing Competition

A new analysis of regulatory policy argues that licensing, permits, and entry barriers across industries function as state-enforced cartels, shielding incumbents from competition and raising costs for consumers. The essay points to banking, health care, waste removal, professional licensing, food regulation, and public education as sectors where rules sold as consumer protections actually suppress alternatives.

Banking provides a clear example. Entry requires a charter, regulatory approval, access to payment networks, deposit insurance, and compliance with extensive federal and state laws. The Federal Reserve supplies reserves, emergency credit, and the benchmark prime rate, while the FDIC protects depositors from losses, reducing their incentive to distinguish between prudent and imprudent banks. The result is moral hazard: risk is socialized, and consequences fall on taxpayers, the essay argues.

Credit card pricing reveals the consequences. The CFPB found that the ten largest issuers controlled 83 percent of outstanding balances and generally charged higher rates than smaller banks and credit unions. Perks and rewards create an illusion of competition that conceals the monopoly rates paid by customers who carry balances.

Health care makes the restriction explicit. Certificate-of-need laws allow incumbents to oppose applications for new facilities, equipment, beds, or services as unnecessary. Rather than letting patients determine whether another provider is needed, the state lets existing providers declare the market adequately served. North Carolina eye surgeon Dr. Jay Singleton, for example, remains barred from offering lower-cost surgery at his own facility while his constitutional challenge proceeds. The essay notes that the outrage would be deafening if the state allowed McDonald’s to veto a Burger King opening across the street by claiming that Whoppers were duplicative. Yet health care incumbents exercise precisely this power.

Montana’s waste-removal rules extend the same competitor’s veto from hospitals to dumpsters. Parker Noland discovered that construction companies were dissatisfied with existing debris-removal services. After borrowing money to buy dumpsters and a specialized truck, he began advertising but soon received a cease-and-desist order from the Montana Public Service Commission. Continuing required a certificate of public convenience and necessity through a process that allowed existing waste companies to oppose his entry without explanation. Republic Services and Waste Connections protested his application, while other certificate holders demanded his tax returns, revenues, financial statements, and other business records. Unable to match their legal and financial resources, Noland withdrew. Rather than merely enforcing safety standards, the state empowered his prospective competitors to deny dissatisfied customers an alternative.

Professional licensing extends the same exclusionary power to entire occupations. Through its influence over medical education, accreditation, licensing, and professional membership, the American Medical Association helped determine who could become a physician. Black physicians were excluded from many state and local medical societies, limiting their access to hospitals and professional opportunities. Following a three-year investigation, the AMA formally apologized in 2008 for the harm inflicted on black physicians, their families, and their patients. Women accounted for only 2.9 percent of medical-school graduates in 1915 and remained a small minority for decades. Jewish applicants also faced blatant discrimination. The AMA’s own review shows that licensing and accreditation helped create a state-enforced medical cartel that restricted supply, raised prices, and reduced patient choice.

Food regulation protects incumbents more subtly by imposing costs that large corporations can absorb and influence. The GRAS process allows producers to hire experts, declare substances safe, and introduce them without formal FDA review or notification. The Environmental Working Group estimates that nearly 99 percent of chemicals added to the US food supply between 2000 and 2021 entered through GRAS rather than formal FDA review. Large producers use these self-certified additives to mass-produce inexpensive foods, rewarding regulatory influence and scale.

The pharmaceutical industry adds patent privileges and rules requiring third-party payers to purchase prescribed drugs. Patents favor drugs over potentially effective natural substances, which generally cannot receive protection unless their compounds are modified or synthesized. Large firms can finance years of testing and regulatory review that may exhaust smaller competitors’ capital. FDA approval provides a government endorsement, while mandated third-party payment weakens patients’ sensitivity to price.

Inside government-owned airports, political authorities decide which businesses may operate and what they may sell. McDonald’s and Burger King compete not side by side for customers but for permission to enter. The essay recounts an experience with an inedible burger at an airport, illustrating how government restrictions create an illusion of choice while shielding the fortunate few from outside competition.

The analysis concludes that these regulations increasingly resemble old-world European mercantilism, generating the scarcity, high prices, and declining quality that fuel populism. Restoring open competition would replace political permission with consumer choice, the essay argues.