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PATTERSON: Crony capitalism hits Uber small business

Suppressing competition for political interests

- - Friday, October 5, 2012

The upstart car service Uber offers customers in major cities such as Chicago, San Francisco and Washington a smartphone app to call for a car. It's an innovative idea that many residents love, but not everyone is excited about the new service.

The D.C. Taxicab Commissioner declared Uber illegal earlier this year, even going so far as to set up a sting operation for one of the company's drivers. Several months later, the D.C. City Council was set to vote on an amendment that would have officially legalized Uber -- with a catch. It mandated the service charge passengers a minimum fare at least 5 times greater than that of a traditional taxi -- effectively banning Uber drivers from competing with taxis.

Though public outcry prompted the council to withdraw its amendment, the Taxicab Commission has targeted Uber anew. It proposed a host of similarly nocuous regulations late last month. Given the commission's track record, it's hardly a surprise that they put the interests of the taxi industry ahead of those of the public.

D.C. lawmakers' attempts to shield a particular interest group from competition exemplifies a broader trend in America -- one that threatens to undermine the mutually beneficial relationship between businesses and the public at large.

It's a phenomenon that goes by many names: crony capitalism, government favoritism and political privilege. Regardless of the label, it occurs when the government doles out benefits to certain companies or industries based on personal connections or political considerations rather than merit.

The Uber story is only one of many cases of cronyism in the area. Brick-and-mortar restaurants dislike food trucks as much as taxis dislike Uber. In the Washington metro area, restaurant associations have lobbied local government to craft regulations to severely restrict food trucks' ability to serve their customers. Many of these rules are couched in terms of public safety or health. In reality, they are attempts to benefit the restaurants at the expense of the food trucks and their customers.

We're seeing cronyism at the state level as well. Virginia has outlawed interior designing without a government-issued certification. In fact, the state requires would-be designers to get a four-year degree in design, undergo a two-year internship with a licensed designer, pass an exam and then finally apply to the state board for certification. All of this time and effort protects the established industry from competition with new designers breaking into the market.

The scale of cronyism at the federal level dwarfs that of the states. Sometimes Uncle Sam plays favorites with individual businesses, such as the $433 million no-bid contract given to a politically connected company last year for an unnecessary smallpox vaccine. Often it benefits entire industries, such as the protection of the sugar industry through quotas and tariffs -- policies that increase the price of sugar for all Americans. Always, it's the ordinary taxpayer who ends up picking up the tab.

Examples of federal cronyism abound, such as Cash for Clunkers for the auto industry, TARP for the financial industry, bailouts for the mortgage industry and so on. Even more common is the favoritism that has been institutionalized through mechanisms such as the farm bill, the transportation bill and Department of Energy grants and loans. These and other such special-interest programs account for hundreds of billions of dollars in government spending just in the past few years. Little wonder that businesses are devoting more and more effort to lobbying in order to gain political influence and get their share of taxpayers' wealth.

With its recent growth, our government now has more resources to give to favored companies than ever before, and more power to choose winners and losers in the economy.

Still, it's often the relatively small infractions -- such as D.C.'s uber transportation discrimination -- that force individuals to take notice of the problems with cronyism and raise questions about the proper role of government. Does the notion of city officials meddling in your ability to choose a ride home upset you? Imagine an entire economy based on cronyism. If we don't fight to restrain the power and scope of our government, that's where we are headed.

Sam Patterson is a policy analyst and research fellow at the Charles Koch Institute and editor of CronyChronicles.org.