Mediaboss Marketing

Businesses and industries too often seek to use the power of the state to eliminate or impair their competitors. Such protectionist proposals end up hurting consumers because they result in less choice, reduced convenience, and higher prices. A new protectionist effort is currently underway in Utah, a politically red state with a Republican governor and a state legislature completely controlled by the GOP.

The target of this latest ill-advised push is Zenefits, a San Francisco-based startup company launched in 2013. As TechCrunch describes it, Zenefits helps businesses by providing a cloud-based dashboard to HR departments designed to help small businesses manage hiring, termination and all the benefits and payroll details necessary in-between those events. Zenefits also connects companies with health insurance providers.

This cutting edge startup has experienced great success early on in large part because, as the aforementioned TechCrunch article points out, Zenefits makes it justthat much easierto manage the insurance piece once a business has authorized the company as its broker. And, as a result, more traditional insurance brokers are finding it difficult to compete with the companys business model.

Utahs traditional insurance brokerage community is none too pleased about having to compete with Zenefits. On November 20, Utah Insurance Commissioner Todd Kiser sent a letter to Zenefits, informing the company that it is violating Utah inducement and rebating laws because it offers its software for free. Kiser said the company should be assessed $5,000 for each violation and twice the profit generated per violation. Because of this, Zenefits would currently be on the hook for at $97,000 penalty.

Kiser told Zenefits that it could come into compliance with state law by raising prices and ceasing to advertise. Zenefits does not charge businesses for their software, but they generate a profit from commission paid by the insurance providers with which they connect their clients. Zenefits understandably does not wish to go along with Kisers orders. Its worth noting that Commissioner Kiser was an insurance broker for 25 years prior to being elected to the state legislature. Kisers dictate, at the expense of small businesses, will protect brick-and-mortar brokerages like the one he used to run. He even said, in his own words, the ease of using Zenefits is part of the reason why he went after them.

So in Utah, its apparently a bad thing for a new company to make it easier for employers to operate their business. Thats an odd approach and one that wont help the state market itself to companies looking to move to and create jobs in Utah. Its also at odds with Utah Gov. Gary Herberts stated commitment to foster and support tech innovation in the state. Other states have smartly welcomed Zenefits.

According to Mark J. Perry, a scholar at the American Enterprise Institute, its classic government-enforced protectionism that protects existing, incumbent high-cost industries from the competition of efficient, low-cost startup rivals. And its also, as Perry puts it, a classic case of regulatory capture, which is when a regulator eventually becomes dominated by the very industry it was supposed regulate.

Its a shame that Utah officials are targeting a company that is creating jobs and helping local small business. According Fortune Magazine, Zenefits has 2000 paying clients and 450 employees. The San Francisco-based company has signed a development deal with Arizona to add 1,300 jobs there in the next three years. After raising $66 million in a June funding round and being referred to as the hottest deal in Silicon Valley, the startup, valued at $500 million, and its job-creating capacity are poised for further expansion.

Here is the original post:
Republican Crony Capitalism On Display Out West