Here's How Businesses Can Rewrite the Rules

The U.K. was all set to vote on a bill for North Sea oil and gas projects...

The government's plan was to hold yearly rounds for drilling licenses. It claimed they would help the economy and the country's energy needs.

And then the vote got delayed... just long enough for the government to collect supportive statements.

It might not come as a shock these supportive statements came from big oil and gas company executives. And while they positioned their statements to suggest this bill would be good for the country, it's better for the oil companies.

Of course oil executives want more licenses – it means they can drill more oil and generate more profits.

This isn't just about "getting opinions." It's about major players in the oil industry potentially swaying a bill with direct benefits for them. The oil industry is getting a chance to push its own agenda.

As we'll explain today, this situation isn't a one-off by any stretch. Big companies often have way too much influence over government decisions... and as an investor, you can't afford to turn a blind eye.

Longtime subscribers have heard the term 'regulatory capture' before...

It's more than just a buzzword in economic circles. Nobel Prize winner George Stigler showed that over time, big companies often end up writing the rules in their favor... all while saying it's for the protection of the customers.

Intuit (INTU), the company behind TurboTax, is a prime example of regulatory capture in action.

Intuit's rise to the top of the tax software market wasn't just because of great software. A big part of its success came from how it influenced the rules of the game...

In 1998, the company brought in skilled lobbyist Bernie McKay. That same year, Congress changed the rules... to encourage the Internal Revenue Service ("IRS") to work with private companies like Intuit rather than develop its own tax service.

Intuit didn't just compete in the market. It helped shape the market in a way that favored TurboTax.

Since Intuit started its lobbying efforts, the stock has skyrocketed almost 10,000%.

Regulatory capture isn't fair competition... It's using power to change the rules to your advantage.

And it can make it tough for anyone else to compete. What's good for one company's stockholders can be bad for competition and new ideas.

Intuit is far from alone with this approach. Regulatory capture runs rampant in industries like aerospace and defense... and, as we're seeing with the U.K. North Sea debate, it's also prevalent in the oil industry.

The folks swaying public and government opinion about oil directly benefit from their statements.

As investors, it's important to be cognizant of regulatory capture... You don't want to find yourself up against a company that's influencing the law to fall in its favor.

It's all about seeing who's really writing the rules – and what that means for everyone else.

Wishing you love, joy, and peace,

Joel
January 26, 2024