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  • Zenefits: A Disruptive Company Fights Back

    February 10, 2015 10:39 AM

    Sometimes cronyism in the business world takes the form of a company receiving special government favors and subsidies—the now-infamous Solyndra, for example—but sometimes it takes the form of being singled out for punitive action instead. The software company Zenefits seems to have ended up in just such a scenario in Utah, where, along among the 50 states, it has been forbidden from operating.

    Zenefits offers free human resources software to small businesses and nonprofits, while offering optional insurance brokerage services. If a company decides to buy insurance through them, they make a commission. If not, their clients are free to continue using Zenefits’ services free of charge. According to the company, about 80 percent of their clients are currently in the free-of-charge category.

    This model is, not surprisingly, a potential competitive threat to other firms in the HR and insurance businesses, and insurance regulators have decided that offering free services in addition to being an insurance broker violates the Beehive State’s “anti-rebating” statute (see this explanation by Sarah Buhr of Tech Crunch). So despite being a legit operation everywhere else in the country, they are not welcome in Utah.

    I was happy to see Zenefits CEO Parker Conrad stand up to this ruling in an op-ed in the Salt Lake Tribune recently, titled “My company is disruptive, but it shouldn’t be banned in Utah.” He emphasizes that recent innovation in the insurance industry has made regulations like Utah’s increasingly obsolete and anti-consumer, while also comparing the hostility to his company to the backlash that has greeted the arrival of UberAirbnb, and Tesla Motors dealerships across the country.

    Fortunately, things seem to be looking up for the company. Fellow entrepreneurs and investors in Utah were quick to ridicule the decision, greeting it with comments like "Regulators, get out of (the) way. Ridiculous. Embarrassing," and "Last week we kicked Uber and Lyft out of Utah. This week Zenefits. The good (old) boy network is alive and well in the Beehive State." Better yet, the Utah legislature is now considering a bill that would clarify the language of Utah’s insurance regulation to allow businesses like Zenefits to operate in the state. Utah’s governor and lieutenant governor have also signaled support for the reform. It could be only a matter of days before Utah’s small businesses get a chance to check out Zenefits’ offerings for themselves.

  • Congress Takes First Shot at NLRB Ambush Election Rule

    February 10, 2015 9:56 AM

    Congress established the National Labor Relations Board as a body made up of neutral arbiters to represent the public in labor disputes. Under the Obama administration, the Board has strayed from its required impartiality to issue rules and decisions that outright favor labor unions over workers and employers.

    An example of the Board unfairly administering national labor policy to advance the interests of labor unions is the implementation of its “ambush election” rule. 

    Specifically, the amendments to union election procedures significantly favor unions by limiting debate and time workers have to learn about the pros and cons of union representation. It does so by shortening the time frame between the filing of a petition and the date on which the election is conducted to as little as 11 days from a median of 38 days.

    Another component of the rule, which inappropriately benefits special interests and jeopardizes worker privacy, compels employers to hand over employees’ private information—cell phone, email address, and work schedule—to union organizers. 

    As I note in the Competitive Enterprise Institute’s agenda for Congress, “Government should not have the power to force employers to disclose workers’ contact information to a special-interest group for any cause. That [ambush election] rule would almost certainly expose workers—who would not have the choice of opting out of union organizers’ obtaining their information—to harassment, intimidation, and much higher risk of identity theft.”

  • Harvard Study Confirms Dodd-Frank's Harm to Main Street

    February 10, 2015 7:31 AM

    Literally since the day the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama, my Competitive Enterprise Institute colleagues and I have predicted its harshest effects would fall on community banks. “While the bill claims to crack down on excesses on Wall Street, its harshest impact will likely be on Main Street businesses that had nothing to do with the crisis,” I wrote on FoxNews.com on July 15, 2010, the day President Obama signed the bill.

    Since then, numerous studies, as well as testimonials from community bank officials, have proven this prediction correct. Yet much of the media and politicians still peddle the myth that Dodd-Frank only hurts Wall Street, and thus, repealing or easing sections of Dodd-Frank would benefit “big banks” at the expense of Main Street.

    But maybe a new confirmation of Dodd-Frank’s harm to community banks will get attention because of its unlikely source: the John F. Kennedy School of Government at Harvard University. Two researchers at the Kennedy School’s Mossavar-Rahmani Center for Business and Government have just produced a study concluding that Dodd-Frank accelerated the decline of America’s community banks.

    While acknowledging that community banks’ share of financial assets has been falling since 1994, authors Marshall Lux and Robert Greene find that “since the second quarter of 2010—around the time of the passage of the Dodd-Frank Act—their share of U.S. commercial banking assets has declined at a rate almost double that between the second quarters of 2006 and 2010.”

  • The Empire Strikes Back!

    February 9, 2015 1:34 PM

    Right-of-center groups have for some time become a bit complacent. Sure the left had the universities, the media, and pop culture—but we had the think tanks. In the world of principled and ideologically motivated policy, we were dominant—libertarian and conservative groups were growing in size and influence. We were—for a while—unchallenged.

    No longer. The left and its financial supporters have realized that gap in their force array and have poured resources into addressing that deficiency. The Center for American Progress—the left’s Heritage Foundation—and the New America Foundation (CAP’s more intellectual counterpart) have become influential counters.

    The most recent example of that is CAP’s new product, Report of the Commission on Inclusive Prosperity“Inclusive” is one of the many adjectives used to modify “capitalism,” joining terms like “crony,” “conscious,” and “creative” to suggest that—with a bit of tweaking—capitalism can be saved. The report resonates with the old themes of the left: “technological progress benefits primarily highly skilled workers” (the shift from skilled long bowmen to muskets? The shift from skilled bookkeepers to offshored data processors?); an obsession with shifts in the distribution of monetary income (very little discussion of offsetting changes in the quality or prices of goods); worries about worker mobility; a view of the market as one of power struggles rather than evolving voluntary arrangements. 

    It’s an interesting glimpse into the way the left is seeking to repackage its messages. Not much new: an appeal to envy, the plea for achieving “creative destruction” in a static economy, an unchanged belief that growth depends on government-led industrial policy, and clichés about technology and education. The left is desperate to retain control of the egalitarian moral high ground. This salvo is unlikely to succeed, but the broader approach should concern us.

  • Educating Tomorrow’s Business Leaders on Markets and Politics

    February 9, 2015 10:44 AM

    This weekend I attended a fascinating event at the University of Maryland’s Robert H. Smith School of Business on the subject of economic inequality. Prof. Rajshree Agarwal put together a program that included a series of short debates by her Executive MBA students, followed by a one-on-one debate on the same questions between University of Minnesota Prof. Paul Vaaler and Ayn Rand Institute Executive Director Yaron Brook.

    Participants argued for and against propositions such as “Taxes (existing and new) should be used to reduce inequality of outcomes” and “CEO pays should be capped at some percentage of the lowest paid employee in the firm.” The MBA students were assigned positions and debated based on recent readings, while Vaaler and Brook argued their own personal convictions on the meaning of economic inequality and the role of both business and government in responding to it.

    Prof. Vaaler emphasized the role of participatory democracy in setting societal norms for questions like the just distribution of wealth, while Brook dismissed concerns about inequality per se, arguing that economic rewards should flow to whomever has earned them, regardless of the resulting distribution. The MBA students followed up with a highly engaged series of questions for both speakers.

    Finally, the students were polled on a series of four questions having to do with inequality and had their responses contrasted with the answers they gave before the debate began. On 3 out of 4 questions, the students moved closer to Brooks’ position—that either inequality is not an issue of paramount concern in the first place, or that public policy measures like capping CEO pay were not well advised.

    While the specific result was encouraging from a free market point of view, the fact that business school students were being challenged on these issues at all is especially important. Business schools do an excellent job training future business leaders in areas like program management and creative problem solving, but don’t necessarily focus on questions of politics and morality that are, nevertheless, also vital to operating a business in a heavily-regulated, mixed economy. Prof. Agarwal, who leads the newly launched Snider Center for Enterprise and Markets at the University of Maryland, is doing an excellent job of challenging her students on these issues. I have no doubt that tomorrow’s shareholders will thank her when her students become CEOs themselves.

  • CEI's Battered Business Bureau: The Week in Regulation

    February 9, 2015 10:39 AM

    Last week’s batch of new rules covered everything from fluorescent lights to postage rates.

    On to the data:

    • Last week, 59 new final regulations were published in the Federal Register, after 77 new regulations the previous week.
    • That’s the equivalent of a new regulation every two hours and 51 minutes.
    • So far in 2015, 254 final regulations have been published in the Federal Register. At that pace, there will be a total of 2,540 new regulations this year, which would be roughly 1,000 fewer rules than the usual total.
    • Last week, 1,445 new pages were added to the Federal Register, after 1,583 pages the previous week.
    • Currently at 6,885 pages, the 2015 Federal Register is on pace for 68,850 pages, which would be the lowest page count since 1992.
    • Rules are called “economically significant” if they have costs of $100 million or more in a given year. Two such rules have been published so far this year, none in the past week.
    • The total estimated compliance cost of 2015’s economically significant regulations is $630 million for the current year.
    • Twenty-one final rules meeting the broader definition of “significant” have been published so far this year.
    • So far in 2015, 54 new rules affect small businesses; five of them are classified as significant. 
  • GOP Divided on Internet Gambling Ban

    February 5, 2015 2:35 PM

    As expected, members of the GOP reintroduced a measure that would create a de facto prohibition on all Internet gambling. The effort, which was written by GOP mega-donor Sheldon Adelson, has Republicans divided. Three states have already legalized online gambling while others are considering legislation to do the same.

    A move by the federal government to overturn or block these state laws is seen by some as an example of “crony capitalism” and as incompatible with traditional Republican values, such as federalism. The measure failed to gain traction in the last session, thanks in part to opposition from prominent free-market, conservative, and grassroots organizations. But with a presidential election looming, it is uncertain if the allure of Adelson’s billions will sway the now Republican-controlled Congress.

    Introduced by Rep. Jason Chaffetz (R-Utah) and Sen. Lindsey Graham (R-S.C.), the Restoration of America’s Wire Act (RAWA) would amend the 1961 Wire Act by removing language that limits the Act to interstate sports betting and adding language that makes it clear the Act applies to all online transactions. Supporters of RAWA assert that it is necessary because: 1) The DOJ unilaterally reinterpreted the Wire Act in 2011 eliminating an online gambling ban, 2) The Internet is inherently “interstate” and states that don’t want online gambling won’t be able to stop it, and 3) A ban will protect consumers.

    As I demonstrated in my UNLV paper, the 1961 Wire Act was not originally intended as a prohibition against all online/telephone gambling. It was very clearly meant to be narrow in its scope, limiting online sports betting “over the nation’s wire.”

    The bill was authored and championed by then Attorney General Robert F. Kennedy as a means to target organized crime. As he saw it, the only way to get at the “kingpins” of the mob was to target their means of fundraising. In all of his statements, testimony, and during Congressional hearings on the bill, RFK and his staff noted that the bill was focused on wagers related to horse racing and “such amateur and professional sports events as baseball, basketball, football and boxing.”

    Those who assert the bill was not limited to specific kinds of gambling (despite the fact that aids explicitly told Congress that it was) point to the language of the 53-year-old bill. Because it prohibits wire transmissions of betting on “any sporting event or contest,” they assert that “contest” covers every other form of gambling. Of course, if the bill was intended to prohibit all gambling, it isn’t clear why it would have needed to stipulate that it also prohibited gambling on sports.

  • Tainted Claims about "Agglomerated" Corks

    February 5, 2015 10:41 AM

    A recent article in Wine Industry Insight titled “Micro-Agglomerates: 350 Million Illegal Corks Per Year?” reports: “Agglomerated cork manufacturers and importers are facing scrutiny from two major federal agencies over health concerns about the plastic used to bind bits of cork glued together. The concern is that chemicals in the binding plastic can leach into wine.” 

    But a closer look at the issue indicates that these agencies are not focused on the corks, there’s nothing illegal about them, and safety concerns are unwarranted.

    The two agencies allegedly interested in the issue are the U.S. Environmental Protection Agency (EPA) and the Food and Drug Administration (FDA). The chemical in question, toluene diisocyanate or TDI, Wine Industry Insight notes, is “listed as a potential carcinogen” with the International Agency for Research on Cancer (IARC) and the National Toxicology Program (NTP).

    This sounds scary, but there are many reasons why no one should be alarmed about the closures or the chemical involved. But before going into that, we should be clear as to what the agencies are doing in regard to the corks.

    According to an EPA press release, the agency has proposed a rule that would require manufactures to notify the agency if a consumer product they are making will contain more than 0.1 percent of TDI by weight. The EPA does not mention scrutiny of corks that may contain TDI. It’s very possible that these corks don’t contain that much TDI and would not even be subject to this proposed rule.

    Nor is the FDA really scrutinizing the issue. Instead, the agency received letter from an outside party asking questions about related FDA law. Wine Industry Insight has posted a link to a letter from the FDA responding to that party, but the name of the party asking questions is either blanked out or never included. But Wine Industry Insight points out that it was an association that represents competitors of agglomerated cork producers—a synthetic cork association—who filed the petition. It notes:

    “Competition is fierce for the low-end market which is why a synthetic cork association blew the TDI whistle on agglomerates in a letter to the FDA.”

    Obviously, competitors have an interest in making this an issue, but FDA isn’t taking the bait. FDA has authority to regulate “food additives” that might pose a threat to public health and that includes chemicals that might migrate from packaging into food. In its cryptic, bureaucratically written letter, FDA is basically indicating that they have data showing there is no detectable migration of TDI into the wine for the closures currently on the market. Otherwise, they’d be regulating now, but they’re not.

    So much for “federal scrutiny.” There really isn’t much because there’s no good reason for it.

  • No Sprinkles in Obama's America: Trans Fat, Hyperbole, and the Threat Nobody Is Talking about

    February 5, 2015 7:59 AM

    “Say goodbye to your favorite sprinkled doughnuts,” warned Clayton Morris, guest host on Fox & Friends. “The [FDA] is now regulating Americans intake of trans fat…the amount needed to make something as small as a sprinkle on your doughnut may be banned.” Morris is referring to the decision announced by the Food and Drug Administration in 2013 to reclassify partially hydrogenated oils—revoking its status as “generally recognized as safe” and creating a de facto ban on the artificial trans fat found in the oils. Fox’s overwrought presentation of the issue led many observers to ridicule the segment as well as opposition to the FDA action. The ribbing is warranted; discussion on both sides of the debate has overwhelmingly relied on emotional arguments and hyperbole. As a result, most people aren’t talking about the real threat this FDA action poses.

    “Only Vladimir Putin would deny American children—and adults that need to rethink their dietary life choices—their God-given right to ingest sugar in whatever form they deem fit,” Elliot Hannon at Slate joked. “Your doughnuts are safe from Obama’s grasp” wrote Steve Benen at MSNBC. And Cenk Uygur dedicated almost seven minutes of his show, The Young Turks, to myth-busting/ridiculing the Fox segment. Uygur’s response included all of the primary arguments made by those who support an FDA trans fat ban and demonstrated how useless the Fox & Friends-style argument is.

    Uygur takes all of the points made by Morris and shows why it is actually an argument for why trans fat ought to be banned. So what that Americans have almost completely eliminated trans fat from their diets already? “It was the FDA effort to eliminate trans fat in the first place that almost solved the problem and now they’re trying to solve it completely,” he asserts. Almost completely isn’t good enough; according to Uygur and the FDA, trans fat consumption is still responsible for a certain number of deaths so it is completely appropriate for the FDA to act to stop these preventable deaths. “Heart attacks, that’s what the right wing calls freedom,” he jokes. He is similarly unmoved by the argument that most food companies have voluntarily removed trans fat from their products. In fact, he points to this as a refutation of the idea that sprinkles or any other food will be taken off the market if trans fat is reclassified. “Nobody is banning any of these foods. It’s a total lie,” he says.

    Uygur is right. Well, at least partially. FDA action in 2003 requiring manufacturers to list trans fat on nutritional labels did contribute to a reduction in consumption. Of course, it was also pressure from public health advocates and consumers’ demand for healthier products that resulted in the drop: from 4.6 grams a day in 2003 to around 1 gram a day in 2012. It’s worth noting, however, that the public health advocates crying out against trans fat now were the same ones who promoted the use of trans fat by vilifying saturated fat in the 1980s. Uygur is also right that the FDA isn’t banning any particular food: not doughnuts, sprinkles, pie crust; they’ll all survive a “trans fat ban.” They may need to be reformulated, may taste different, and be more susceptible to spoilage, but most products, if not all, will remain on shelves in some form or another.

    Uygur also right when he argues that almost eliminating trans fat from our diet isn’t an argument against a complete ban. For instance, claiming that Americans consume next to zero arsenic isn’t going convince many people that we should let food companies put arsenic in our food. But this is the part of the discussion missing from both sides: trans fat isn’t arsenic and it’s not a poison: it’s a food. As with any other food or beverage, if you consume it in great enough quantities, there will be negative consequences. But trans fat isn’t “harmful”; it is unhealthful, potentially. So, the question is: when is it okay for the FDA to make decisions about what foods or ingredients can or can’t be part of a healthful diet. And is that something we want the FDA deciding at all?

  • Congress Should Reject Obama Budget Increase for Education Department Office for Civil Rights

    February 4, 2015 4:14 PM

    The Obama administration perversely rewards agencies that overstep their authority by giving them budget increases to handle the increased workload that results. 

    A classic example is the Education Department’s Office for Civil Rights (OCR), where I used to work. President Obama wants a 31% budget increase for OCR for Fiscal Year 2016. That is a very bad idea.

    OCR’s budget should be cut, not increased. Cutting its budget would make it harder for it to punish school districts and colleges for perfectly lawful and reasonable policies. People who write about educational issues, such as Reason magazine’s Robby Soave, and the National Review’s George Leef, rightly oppose the proposed budget increase for OCR.

    OCR has twisted virtually every statute it is charged with enforcing, such as Title VITitle IXthe Rehabilitation Act, and the Americans with Disabilities Act. Citing Title VI, which bans racial discrimination, OCR has demanded that school districts adopt what are effectively illegal racial quotas in school discipline, even though that violates the Constitution, the Seventh Circuit’s decision in People Who Care v. Rockford Board of Education (1997), and the plain language of the Title VI statute.

    Moreover, OCR has micromanaged college investigations in sexual harassment and assault cases in ways that make them more costly, unfair, and likely to cause the expulsion of innocent people. It also has undermined efforts to criminally prosecute rapists and prevent future rapes by failing to ensure that such crimes are properly reported to prosecutors.

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