How Not to Regulate the Innovation Sector

Imagine a couple new startups begin offering a brand new service in Michigan. These companies innovatively use new technologies to meet consumers’ needs in real-time and transform ordinary workers into entrepreneurs. Pretty soon, however, some raise concerns about customer safety regarding this new service. Now imagine the Michigan Legislature quickly jumps into action (a stretch, I know) and proposes new regulations aimed at protecting consumers.

These regulations are impressively demanding — more so than those that govern most Michigan industries. They require these startups to register with a state department, pay an annual permit of $5,000, subject themselves to state-sanctioned audits and keep specific records on employee performance. They must also carry a mandated level of insurance and enforce a zero-tolerance drug and alcohol policy. They may only hire employees would are at least 19 years old, licensed, and who register and insure their own equipment. All equipment must be inspected annually by a licensed professional.

In this imaginary scenario, you would think these thorough regulations would address all concerns about customer safety. But, in reality, you’d be wrong.

The situation outlined above is real and being debated in Lansing right now, regarding “transportation network companies,” better known as ride-sharing. A bipartisan group in the Michigan House, led by Rep. Tim Kelly (R-Saginaw Township), has introduced legislation that would create the very regulations described above for ride-sharing companies such as Uber and Lyft.

But Sen. Rick Jones (R-Grand Ledge) and Sen. Dale Zorn (R-Ida) don’t think these tough regulations are tough enough. They’ve introduced competing bills in the Senate that would institute similar regulations to those in the House bills, but also force ride-sharing companies to operate under the 25-year-old Limousine Transportation Act, create Detroit-specific restrictions and enable local governments to pile on their own rules and regulations.

The House regulations seem sensible, rigorous but not overbearing — just the balance policymakers should aim for when regulating a brand new industry. And it’s not obvious how the additional regulations proposed in the Senate would benefit consumers of ride-sharing services. Rather, they seem to be aimed at force-fitting a new innovation into an old business model. That’s not a good strategy for reinventing Michigan.

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