What Nannies Teach Us About Smart Regulation The market can regulate products or businesses better than any bureaucrat. Just ask a babysitter.

By Ray Hennessey

Opinions expressed by Entrepreneur contributors are their own.

Nothing makes you think of the wrong-headedness of regulation more than hiring a nanny.

For a number of reasons, I've been in the market for a good nanny. Any parent can tell you how stressful such an experience is. After all, this is the person taking care of your children, feeding them when they are hungry, schlepping them back and forth to school and making sure all the evils of the world stay safely tucked away in the closet or under the bed.

Thanks to the Internet, and some pretty nifty innovators, the process of finding the right nanny has evolved. We don't need to sing songs as we write letters to Mary Poppins anymore. We hit SitterCity or Care.com (usually both), put in our requirements (CPR, college degree, no warts, plays games, all sorts), and we are greeted with a list of all eligible people in our area eager to watch our little ones. (As an aside, anyone else notice that almost every nanny has a Master's in Fine Arts?)

After getting the list, it is then up to us to pare that down through interviews, the references, then background checks. Add a little hondelling over the hourly rate, and, voila!, you have the person to whom you are entrusting your future and you can breathe easy (at least to the extent you're not texting home every half hour).

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Notice what isn't involved in that transaction? The government. In a world where everything is so tightly regulated, the care of most little children isn't. Pay what you want. Hire and fire at will. You have a refreshingly free market in the nanny world, where the consumer and client work hand in hand. And it works beautifully. No one tells us who can be a nanny, and no one tells us who we can and can't hire.

What is amazing about this is that the stakes are so high. This is child care we're talking about. I couldn't be a plumber years ago without licensing from a government agency. You can't sell a house without a license and a series of testing requirements. Many business owners are shocked to find out all the fees and requirements and hoops they have to jump through just to hang a shingle outside their front door. But you can care for a baby without anyone interfering.

Horrified? Don't be. There is a myth that, when the government isn't involved, there is no regulation. The opposite is true. Nannies and child care are insanely regulated -- but by the neurotic market of uptight parents rather than a bunch of bureaucrats. The consumers are the regulator. On sites like SitterCity, parents share references, rate providers and make sure bad actors are kicked off quickly. That protects other consumers, and helps them make a more informed decision.

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It happens in all sorts of businesses. Look at restaurants. A government inspector might slap an A rating on a diner because it has fewer than three roaches swimming in the grease trap, but consumers will close down that restaurant once the power of Yelp is unleashed. When products don't work or cause a safety hazard, Twitter responds a heck of a lot faster than the Consumer Product Safety Commission.

That is the essence of true free market regulation -- the market itself as regulator. And the fact that it works so well is beyond debate.

It is also an approach that can boost business performance. The Mercatus Center just released a report showing that, over a period from 1997 to 2010, the industries that were exposed to the fewest regulations grew by 63 percent, while the most-regulated industries grew by 33 percent.

Yet the promulgation of new regulations happens unchecked, with a new government rule published every two-and-a-half hours in this country.

That is bad for business and, it turns out, unnecessary. If the real Nanny State can be devoid of state interfence, it seems clear most American companies don't need more government inspectors to babysit them.

Related: The Myth of the Have-Nots

Wavy Line
Ray Hennessey

Former Editorial Director at Entrepreneur Media

Ray Hennessey is the former editorial director of Entrepreneur.

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