Who Benefits When Systems Stay Complicated

Why Complexity Seems Accidental

Complex systems seem to evolve naturally—each rule added to solve a problem, each process added to prevent a failure. Complexity seems like an unintended consequence of trying to be thorough.

But complexity often serves someone's interests. Understanding who benefits from complexity reveals hidden incentives.

How Normal Thinking About Complexity Works

Intuitively: Complexity is unfortunate byproduct of modern systems. Nobody wants it; it just accumulates.

If only we could simplify, everyone would benefit.

This underestimates how many powerful groups benefit from complexity.

Who Benefits from Complexity

Beneficiary 1: Incumbents & Established Firms

Complexity creates barriers to entry. If your industry's regulations are complex, new entrants must invest millions in compliance before they can compete.

Example: Medical device manufacturing

FDA approval takes 7 years and $50 million. Startup founder calculating compliance costs realizes they can't compete with established firms who amortized these costs years ago.

The complexity protects established firms from competition.

Example: Financial regulation

50-state licensing requirements for financial services cost $10+ million. New fintech startup abandons business idea because compliance cost exceeds venture capital available.

Complexity protects established banks from fintech disruption.

Real-world magnitude:

Regulatory barriers prevent thousands of potentially valuable businesses from being started each year.

Established firms don't have to beat competitors on merit—they beat them through regulatory moats.

Beneficiary 2: Compliance Professionals & Gatekeepers

Complexity creates jobs for people who understand it: lawyers, consultants, compliance officers.

More complexity = more billable hours.

Examples:

• Legal services: Complex regulations create demand for lawyers
• Accounting: Complex tax code creates demand for accountants
• Consulting: Complex organizational issues create demand for consultants
• Licensing boards: Professional licenses (doctors, lawyers, engineers) are set by incumbents; boards can set requirements high, creating artificial scarcity

Real-world example: Occupational licensing

• In 1950s, 5% of jobs required licenses
• Today: 30% of jobs require licenses
• Why? Professional boards make requirements, which benefits existing licensees
• Competition is reduced, prices are higher, consumers lose

Regulatory capture mechanism:

Industry veterans become regulators. Regulators write complex rules. Regulators leave for high-paying jobs at regulated industry. Complexity serves all of them.

Beneficiary 3: Power Holders & Political Leaders

Complexity obscures power distributions, making them harder to challenge.

If you don't understand the system, you can't effectively oppose it.

Example: Campaign finance regulations

Rules are so complex that few people understand where money actually comes from or goes. Complexity serves those benefiting from current money flows.

Example: Tax policy

Tax code is 10,000+ pages. Complexity enables:

• Corporations to hide profits through accounting
• Wealthy individuals to hire specialists to minimize taxes
• Politicians to claim they're "fixing" tax system while exempting favored interests

Complexity serves those with resources to navigate it.

Beneficiary 4: Regulators & Bureaucrats

Regulatory agencies grow in power as regulations become more complex. More complex = larger budget needed = more power.

Simplifying regulations would reduce agency power.

Example: Financial regulation

After 2008 crisis, financial regulations became dramatically more complex. Regulators' power increased because:

• New agencies created (with budgets, staff, authority)
• Interpretation of rules required expertise
• Complex rules meant regulated industry dependent on regulators for guidance

Simplified rules would reduce regulator power and agency budgets.

How Complexity Becomes Intentional

Strategic Obfuscation:

Sometimes complexity is deliberate—created to hide information, decisions, power flows.

Examples:

• Bureaucratic procedures designed so nobody knows who actually makes decisions
• Algorithms deployed without transparency (algorithm determines loan approval, hiring, content, etc. but logic is hidden)
• Legal documents written in language ordinary people can't understand
• Regulatory requirements written so vaguely that regulators have discretion (creating informal power)

Intentional obfuscation serves:

• Avoiding accountability (if nobody understands the system, nobody can challenge it)
• Maintaining power (only people understanding the system can navigate it)
• Creating dependency (people need experts to understand the system)

The Perverse Incentives of Captured Regulation

Regulatory Capture in Action:

1. Industry benefits from regulation (protection from competition)
2. Industry funds politicians/lobbies regulators
3. Regulators write complex rules favoring industry
4. Regulators leave government for industry jobs
5. Complexity increases (benefits all parties)
6. New entrants can't compete (barriers to entry too high)
7. Consumer loses

Who wins:

• Incumbent corporations (protected from competition)
• Wealthy investors (own stock in protected corporations)
• Compliance professionals (earn fees navigating complexity)
• Regulators (power, budget, future industry jobs)

Who loses:

• Consumers (higher prices, less choice, lower quality)
• Would-be entrepreneurs (businesses never created due to barriers)
• Workers (fewer job opportunities, lower wages)

Real-World Examples

Medical licensing:

• Licenses designed to protect physicians, not patients
• Requirements make it hard to become doctor (artificial scarcity, high prices)
• Patients face higher costs, longer wait times
• Physicians benefit (fewer competitors, higher salaries)

Taxi medallions:

• NYC taxi medallions cost $1 million in 2010s
• Why? Complex licensing system limiting number of taxis
• Incumbents benefited (protected from competition)
• Consumers lost (high prices, poor service)
• Uber disrupted this, showing how much complexity was serving incumbents, not public

Financial regulation (post-2008):

• Regulations became dramatically more complex
• Compliance cost increased (benefits lawyers, consultants, compliance professionals)
• Incumbent banks can afford compliance (new banks cannot)
• Regulatory power increased (benefits agencies)
• Community banking declined (smaller banks can't afford compliance)

Common Myths

Myth 1: "Complexity is inevitable in modern systems."

Partly false. Some complexity is inherent. But much is maintained because it serves someone's interests.

Myth 2: "Regulators are trying to protect the public."

Partly true. But regulations are written by people with incentives. Those incentives often aren't perfectly aligned with public interest.

Myth 3: "More rules prevent bad outcomes."

False. Rules can create bad outcomes while appearing to prevent them (regulatory capture, barriers to entry).

Myth 4: "Simplifying systems would improve outcomes."

True, but politically impossible because those benefiting from complexity have power to prevent simplification.

Why Trending Now?

2024-2025 Regulatory Burden Recognition:

• Regulatory compliance costs exceeding benefits in many sectors
• Barriers to entry preventing business creation
• Venture capitalists noting that regulatory complexity makes certain businesses unviable
• Policy conversations (though not action) about simplification
• Tech companies disrupting industries partly through regulatory arbitrage (operating in less regulated environment)

Are These Incentive Structures a Threat?

To Competition: Absolutely. Complexity protects incumbents.

To Innovation: Yes. Barriers to entry prevent new solutions.

To Consumer Welfare: Yes. Complexity enables higher prices, lower quality, reduced choice.

To Democracy: Yes. Hidden power structures and opaque systems undermine accountability.

How to Recognize Beneficial Complexity

Real complexity (inherent):

• Nuclear safety (genuine need for detailed procedures)
• Medical treatment (complex body, genuine need for expertise)
• Modern infrastructure (genuinely complex)

Maintained complexity (beneficial to specific groups):

• Licensing requirements that exceed safety needs
• Regulatory requirements that are outdated
• Administrative procedures that serve no function except creating jobs
• Systems deliberately opaque to prevent understanding

Distinguishing these requires analysis. But many complex systems maintain complexity long after function is served.

Conclusion

Complexity often serves specific groups' interests: incumbents are protected from competition, compliance professionals earn fees, regulators gain power, and wealthy investors profit from reduced competition. While some complexity is inherent to modern systems, much is maintained through regulatory capture, strategic obfuscation, and perverse incentives. Simplification would benefit consumers, workers, entrepreneurs—but is politically impossible because those benefiting from complexity have power to prevent it. Understanding who benefits from complexity reveals hidden incentive structures that explain why systems remain complicated despite widespread recognition that simplification would improve outcomes.