Friday, August 17, 2012

The Moat Around Creativity

I have long pointed out how regulations in the financial sector make it difficult for new players to get involved on Wall Street on their own. For all practical purposes, there is a moat around Wall Street and the regs make it all but impossible for others to join in the game.

Indeed, there are moats around more and more industries, as regulations make it harder and harder for new competitors to enter many fields. Last night, I caught the tail end of a CNN show that was profiling a successful NYC restaurateur, I did not catch his name or the name of his restaurants, but apparently he was very successful, a new restaurant he recently opened up generated $80 million in revenues its first year.

The host asked him what he would recommend for someone thinking about opening a new restaurant in New York City. His answer, "Don't"

He went onto say that when he started in the 1970s, there were very few regulations on the food service business, but he said there are so many regulations in NYC on the restaurant industry now that it makes it near impossible for someone new to start out.

The moat against  creativity is expanding around more and more sectors and is an important factor in the slowing advancement of the economy. The most creative ideas often come from startups and with the majors suffocating startups before they can get off the ground, the fewer new ideas are offered to consumers.


  1. 80 million dollars? A freaking restaurant? People must be really rich these days... after all, there's ''no'' inflation!

  2. Those are NEW YORK dollars... :)
    Same concept as a New York minute...Gone real fast!

  3. I wonder how the rise of the regulatory state has changed the profile of the entrepreneur over the years. It seems to me that the type of person (personality, temperament, etc.) who would have started a new business 30 or 40 years ago was probably quite different from someone who would attempt it now. For one thing, an entrepreneur today has to be willing to suffer all the indignities and inconveniences of regulations that didn't exist in the past. I'm guessing there are lots of people out there who might be creating great things but for the regulatory state. So, even among those "outside the moat," regulations favor certain personality types at the expense of others.

    1. The explosion of the regulatory state has also effected what types of industries attract entrepreneurs. This is why there is so much activity in software start ups as it is one of the only remaining industries that is relatively unregulated.

    2. I think you are right, but I think the profile is different than what you think.

      I think modern entrepreneurs are more "I don't give a shit" about rules and laws. From what I've seen, most successful guys just ignore laws they don't like figuring they'll never get caught, or if they are caught, they'll negotiate the penalty down. For the most part, they're right. The laws are ludicrous and not really intended to protect the public. The laws and regulations mostly exist so the bureaucrats have a plethora of hammers to hammer you with if they suddenly decide they don't like you for some reason.

    3. Like I tell my attorney:
      "Don't tell me what I can't do, just defend me when I get caught".

  4. Robert

    I think "another moat around creativity" is the current I.P. (intellectual property) regime. At least patents. Look at the "patent wars" in the personal technology business. All the major players now seem to need a large patent portfolio just to protect themselves from ending up in court. The all end up building a cache of patents to use as "deterrence" against I.P. attack from other large players. It is really something of a "M.A.D." (mutually assured destruction) thing to use a cold war analogy. In effect this "M.A.D." I.P. system is like a huge de facto tax on any new entrants in the cell phone / personal computer technology space. It is amazing we have any innovation there at all under the circumstances.

    1. This is one area where I agree with the anti-IP crowd. Patent law, as implemented, is nothing but a government-granted monopoly. If patents were granted the way the law is written, there'd be a handful granted each year instead of the many thousands that actually are granted. The patent office basically operates in this manner:

      1) Someone submits a patent that is not the least bit orignal and could easily be accomplished by any competent person in that field of expertise (even though patents are supposed to be unique and not easily accomplished by someone in that field).
      2) The patent office stamps the submission, hands it to some idiot bureaucrat who has no clue or expertise in the area.
      3) The clueless bureaucrat kicks the patent application back with token criticisms to show he's "doing his job."
      4) The applicant makes the token changes to the application and resubmits it.
      5) The bureaucrat, having no idea what the invention is about, lets it sit on his desk for a few months. Figuring he can just let the courts figure it out, he approves the application.

      The problem is that "figuring it out in court" costs at least $2 million, and small companies can't put up the fight.

      And you must have fundamentally mis-wired brain circuitry to be a patent lawyer. I've watched the guys argue one way, and then 5 minutes later argue exactly opposite the earlier argument and act like there's nothing inconsistant in what they're doing.

      While I have no theoretical problem with patents, the government has screwed it up so badly that we could be better with no patent system at all than what we have.