President Trump Should Adopt Virginia Regulatory Model

For the last four years, the Biden Administration tried to achieve two contradictory goals at the same time. Administration officials like Lina Khan embarked on a relentless quest to combat “big business.” At the same time, Biden agencies pumped out new regulations at a breakneck pace.

 

But the Administration refused to acknowledge a dirty little secret: government interference is most often the cause of market concentration rather than its solution. Simply put, the more the government regulates, the larger business will become. And the more concentrated the market, the more prices will go up.

 

Fortunately, there is another way. In his first term, President Trump unveiled perhaps the most ambitious deregulatory agenda in our nation’s history. And in the last four years, several forward-thinking states have logged huge wins in the regulatory modernization space. Foremost among these is the Commonwealth of Virginia, which could serve as a model for a regulatory reduction agenda for the next four years.

 

It is not mere coincidence that the industries with the greatest year-over-year cost increases (healthcare, education, housing) tend to be the most heavily regulated and that market concentration grows as government layers on additional regulation.

 

To understand why government expansion and increased market concentration always seem to go hand in hand, put yourself in the shoes of a small business owner. You want to do the right thing and achieve full regulatory compliance. But you’re forced to pore through thousands of pages of federal statutes and regulations, and thousands of additional pages of state and local statutes and regulations, to even figure out what the law is.

 

Once you’ve completed that Herculean task, you’ll soon realize that you haven’t come anywhere close to identifying all the applicable rules. Often, the most relevant information isn’t in the regulations at all but rather in “guidance documents.” These likely number in the millions, though no one really has a precise figure. And, in an inexplicable act of anti-transparency, President Biden killed the Trump Administration’s efforts to ensure that these documents at least appeared on agency websites.

 

Your larger competitors, meanwhile, aren’t too concerned about any of this. They can pay a team of lawyers to figure all this out for them, and their legal budget represents a minuscule portion of their operating costs. In other words, precisely because they are big, larger companies can more easily spread the costs of regulatory compliance over their products, making them more competitive. And if agencies get too pushy, they can hire lobbyists to seek regulatory waivers.    

 

Is it any wonder, then, that big companies often argue in favor of more regulation, either directly or by funding sympathetic nonprofits, as a way of achieving a competitive advantage over their smaller competitors? Or that so many would-be entrepreneurs throw in the towel and go work for a big company?

 

This concern is not just theoretical. One recent study showed that the rate of new firm creation dropped as federal regulation increased. In other words, the more the government regulates, the more big companies win out. Another study found a link between regulation and income inequality. The more the government regulates, the harder it is for average people to get ahead.  

 

Having never met a big government program they didn’t love, the Biden Administration tried to use enhanced antitrust enforcement to solve the problem. With Ms. Kahn at the helm, the FTC took a newly aggressive approach to blocking mergers and even trying to break up companies.

 

But like rent control policies in coastal cities, government-dictated solutions are likely to be manipulated by well-connected insiders. Plenty of New York’s coveted rent-controlled apartments are owned by those with incomes far above the federal poverty level. Likewise, the victims of an energized FTC are likely to be companies lacking either the resources or resolve to hire the best lawyers and lobbyists to defend them. The biggest, most sophisticated businesses seldom have that problem.

 

So what does an effective strategy to combat market concentration, and the inflation that comes with it, look like? Consider what’s happening 100 miles south of DC. In 2022, Governor Glenn Youngkin issued an Executive Order requiring Virginia agencies to cut regulatory restrictions by 25%. The Commonwealth’s occupational licensing agencies, in particular, have taken this initiative to heart. Already, they have cut back numerous barriers to entry and undertaken efforts to allow new market entrants.

 

All told, Virginia’s regulatory reductions save citizens over $1.2 billion per year.  And they make life much easier for everyday Virginians, shaving $24,000 off the cost of building a new house, allowing licensed professionals to get to work faster, and reducing paperwork burdens in numerous ways.

 

Governor Youngkin’s Order also requires agencies to consider how every single regulation and guidance document they issue affects small businesses and explore less restrictive alternatives.

 

Studies have shown that these sorts of initiatives work. Reduced regulatory burdens allow smaller companies to compete on a more even playing field. They also encourage entrepreneurs to enter the market, increasing competition and driving down costs. Freedom is the answer to market concentration and inflation.

 

For decades, federal regulators’ preferred solution to pretty much every problem, including those they helped create, has been more government. Virginia tried something new, and it works.

 

As President Trump begins his second term in January, he has made it clear that government reform will be a top priority. Creating the new Department of Government Efficiency (DOGE), led by Elon Musk and Vivek Ramaswamy, shows a clear commitment to change. When DOGE is up and running, it should look at the Virginia model as the blueprint for making the business climate great again.