So, a new startup comes along, and things are going well. The have new, innovative ideas that satisfy the needs of consumers. They manage to get a few hundred thousand dollars from a VC so that they keep operating for another 6 months. This startup offers a service that is cheaper, safer, quicker and generally more efficient that what is currently available. All of a sudden they'll be breaking the law unless they hand over half a million to the government. They can't find the money. They're done. You never hear about it. Other new companies that might have added value in the marketplace come along, look at the regulatory hurdles, and don't even try.
They might have provided a service that would be beneficial to the consumer and they might have hired a bunch of programmers once they had established themselves. The established companies already in the market would have had to lower prices and become more efficient to compete. Instead, the competition is crushed, you never hear about it, never know about it.
This is what this law is designed to accomplish. Nothing to do with Paypal. Stop talking about Paypal.
Many regulations serve the interests of politically well connected powerful oligopolies in this way. This is just one example. The reason put forward is always that this is some way of protecting you. That, if this regulation didn't exist, these companies wouldn't have to be responsible. In reality, it strengthens the hold on the marketplace of the oligopoly already in place and makes you more vulnerable to them.
Keeping companies out of the marketplace stifles competition. This is not good for you, the consumer.
I generally agree. What most people often don't realise is that a lot of regulations that are allegedly in place to protect to consumer are actually there to prevent established interests.
This is particularly true of licensing. The standards for licensing and the like are often co-opted by the industry/profession being licensed. As such, they use licensing to raise the barrier to entry, effectively limiting competition.
One example that comes to mind is that the aestheticians in Texas at one point were fighting to require people that do threading to get a license. I believe said license would require thousands of dollars and hundreds of hours to obtain. Ultimately, there was absolutely nothing about threading the license at all. I am not sure if this law was ever passed, but it is merely on example of licensing works in practice to hurt competition, raise prices, and hurt the consumer.
> All of a sudden they'll be breaking the law unless they hand over half a million to the government.
Or put up a few coins for a surety bond. If you're a financial startup and your investors don't trust you enough to put up bond money, you should probably find a different niche (or investors).
So, we assume they're going to commit some type of fraud or crime up front so they have to submit to posting bond, but the investors are supposed to trust them with another half million. Or, as you put it, a few coins. Wow, in your world a half million is a few coins. You live in a universe different than mine.
Fraud or criminal elements are not required. Old fashioned screw ups and security lapses do the job of losing other people's money just fine too. The bond requirements are just a method of basic consumer protection. Money transfers are a serious business with serious consequences, if your investors don't trust you with either the funds for the bond or the payments on a surety bond, you really are in the wrong business.
A surety bond means you only have to pay a small portion of the total. It's similar to insurance. You pay a company with larger resources to vouch for you in case you have a problem. Instead of ponying up (the refundable) $500K you pay something like $25k. You don't get it all back if you close up shop, but you didn't need to put much capital out there. This is how a lot if not most licensing bonds work.
If said company was truly innovative and satisfies the interests of consumers, I'm sure it won't have much trouble raising the cash necessary to continue being a law-abiding citizen.
The implication of what you are saying is that the half million for this startup company will present no extra hurdle and will have no impact on their ability to compete and get started (as you stated it "won't have much trouble").
This begs the question: what amount would be a barrier to entry into the market, 1 million, 10 million? Is there any amount of regulation and cost that you would consider a barrier to entry into the market? If as you imply a half million is not a barrier ("no trouble"), why is not a barrier, why is not a hurdle?
Part of the problem is that people here are so used to cheap software startups that their frame of reference is skewed. We're talking about at $500k escrow or a (as some claim) $25k bond. $25k is peanuts in the cost structure of starting most businesses.
It takes upwards of $500k just to open a McDonald's franchise but they're still growing like weeds.
They might have provided a service that would be beneficial to the consumer and they might have hired a bunch of programmers once they had established themselves. The established companies already in the market would have had to lower prices and become more efficient to compete. Instead, the competition is crushed, you never hear about it, never know about it.
This is what this law is designed to accomplish. Nothing to do with Paypal. Stop talking about Paypal.
Many regulations serve the interests of politically well connected powerful oligopolies in this way. This is just one example. The reason put forward is always that this is some way of protecting you. That, if this regulation didn't exist, these companies wouldn't have to be responsible. In reality, it strengthens the hold on the marketplace of the oligopoly already in place and makes you more vulnerable to them.
Keeping companies out of the marketplace stifles competition. This is not good for you, the consumer.