When a shift in the free market occurs, rarely is the appropriate reaction an increase in regulations. Yet that is precisely the first instinct of many governments.
We see this dynamic play out in the Cayman Islands too often. Something “happens” in the economy. Someone complains. Government steps in with a “solution.” And then the real problems begin.
Two such instances are highlighted in today’s Compass, concerning “home-sharing websites” such as Airbnb, and price reporting requirements proposed for fuel importers. In both instances, our government has responded to private sector activity by threatening, explicitly or implicitly, to put those businesses out of business.
Does anyone really believe that a government clampdown on short-term rental accommodations is going to make Cayman a more attractive destination for tourists (or tourism entrepreneurs)? Or that the government’s demanding to know about fuel importers’ operating costs is ultimately going to benefit consumers?
We think not.
The more probable outcomes are that fewer people will visit Cayman than otherwise would have, fewer rooms will be added to Cayman’s “hotel inventory,” and companies engaged in importing fuel into our country might reconsider.
If one, or both, of our fuel distributors were to abandon this market, Cayman would, quite literally, be close to “out of gas.” This is a very dangerous game that government appears to be playing.
That being said, we do understand why our officials have been tempted to act in these two cases. Tourism is one of the key pillars of Cayman’s economy, and the Airbnb-listed accommodations compete directly with existing small (and large) operators who have been meeting expensive government-mandated requirements, such as licensing, property inspections and taxes. The situation is not unlike the scenarios playing out in many countries between “ride-sharing” programs such as Uber and legacy taxi cab companies.
Globally, government regulation often comes perilously close to “protectionism,” and those who are being protected are not consumers but entrenched, and oftentimes politically connected, “practitioners” who benefit by measures that increase the “cost of entry” into their industries.
In regard to fuel importers, it is undeniable that the price of gasoline in Cayman is both high, and highly volatile. Gasoline, of course, differs from other imports, such as T-shirts, in that it is a vital commodity. So, again, we understand the government’s temptation to act – and it does have options.
Planning Minister Kurt Tibbetts is exactly correct when he seeks to ensure that there is a competitive relationship – not a collusionary one – between our two petroleum importers. If Mr. Tibbetts has evidence of collusion or price fixing, he should publicly and persuasively present it.
However, the very last thing Cayman needs is what Mr. Tibbetts has proposed as “government’s next step” – “outright market price regulation.”
Government price controls are antithetical to a free-market, capitalist-based economy, and Mr. Tibbetts would do well to review the economic literature – there’s plenty of it – before venturing further into the morass of state-controlled pricing in selected industries.
The bottom line is, even in a small place such as Cayman, successfully controlling commerce in a country is an extraordinarily complex operation that requires the deftest of touches, not the heaviest of hands. The surest way to influence an economy is certainly not by government threats or, even worse, government edicts.