Childcare Is an Industry Harmed by Regulatory Capture

If you haven’t yet watched this recent talk by illustrious venture capital investor Bill Gurley on Regulatory Capture, it is an excellent overview of what happens when special interests lobby for government regulation that harms society as a whole

In regulatory capture, a special interest is being prioritized over the general interests of the public, leading to a net loss for society.

In his talk, Gurley shares his experience building Tropos Networks, a company designed to bring mesh Wi-Fi technology to cities. Despite enthusiasm from city mayors, robust lobbying campaigns led by major telecom giants such as Verizon and Comcast ultimately killed the deals and meant residents of those cities were not able to access this better technology.

He provided other examples of industries hit by regulatory capture like healthcare and even Covid testing, and the ways that regulation benefited a special interest and harmed society.

As it turns out, the childcare industry is also impacted by regulatory capture, and as a result, parents and childcare providers pay an enormous price. 

One example of regulatory capture in childcare is government investment in early childhood education programs. Instead of directing federal dollars to families to help with the costs of childcare, federal dollars often go towards specific programs operated by Head Start or public school districts. This means that many families who need child care assistance sit on long waitlists for very limited spots, instead of being able to take the funds and use them at a private child care center that has availability.

Another example of regulatory capture is the stringent and sometimes nonsensical licensing requirements that make it difficult for new childcare providers to enter the market. This limits the availability of childcare options, and increases the costs. Like with many instances of regulatory capture, the special interests that benefit from the regulation existing are not obvious or easy to track down.

On the surface, regulating child care appears to be a good thing. It is intended to keep children safe. However, a lot of the child care regulation that exists is not in the best interests of children. For example, in California, child care providers are required to have a dedicated outdoor play space with “at least 75 square feet per child of outdoor activity space based on the total licensed capacity.” This requirement can be onerous and expensive for providers, especially those in urban areas with limited space.

Other unnecessary regulations have to do with the credentials required to provide child care. For example, in New York City, all classrooms must be led by a group teacher who must possess a bachelor’s degree in early childhood education or a related field and two years of documented experience in a child care setting, in addition to state certification. There are so many qualified professionals who obtained degrees in other fields and who have the passion and drive to care for children but are held back by education requirements that can be time-consuming and expensive to obtain. 

The childcare industry is heavily regulated, but not all of these regulations are in the best interests of children, families, and child care providers. The excessive regulation makes it difficult for new providers to enter the market and for existing providers to operate. As we try to make childcare more affordable and accessible for families, one obvious solution is to put the best interests of children above special interests.