Regulation destroys free markets in 4 distinct phases:
CONSOLIDATION - The regulators consolidate their power by making regulations that are popular. Sometimes they make regulations that the free market is already doing and then take credit for them. They use input from the biggest industry players to create regulations that the big firms are already doing. So the big firms are barely inconvenienced by the regulations, but the small firms have large compliance expenses. The goal here is to consolidate power and give the bigger firms an advantage.
BULLYING - After power is consolidated, the regulators start playing favorites. They decide who the winners and losers are in the regulated industry. They start making regulations that are inconvenient and annoying, but they are powerful enough to silence dissent now. Free market innovations that do not please the regulators are squelched. Operating outside of the regulation is not allowed.
MONOPOLIZATION - The regulated industry loses competitors and only a few big firms that have access to the government are allowed to survive. All of the smaller firms are driven out. Regulators can now shut down any firm and have absolute power. Barriers to entry are created to exclude new competition.
NATIONALIZATION - The government now formally or informally combines with the few remaining industry firms. The industry leaders are just puppets now, the government can exert control from behind the scenes whenever they wish. The free market structure of the industry has been wiped out.
Itâs important to remember that regulation and law are different. Laws are passed by congress, which is elected. Ideally, laws are debated publicly and apply to everyone equally. Regulations are created by bureaucrats who are not elected and usually cannot be fired. This eliminates the accountability and transparency of the regulatory process.