Brick-and-mortar stores (especially smaller boutiques) were having a tough time competing against online retailers.That was true before coronavirus and the economic shutdown forcing businesses to close and reopen only with strict new regulations that massively increase costs and limit stores’ income-earning potential. 

Given this reality, it is unavoidable that many, many stores will permanently shut down. Policymakers—like just about everyone—are unhappy with the outcome, but it is simple math: If operations become more expensive and income goes down, businesses’ profit will go down too. For many businesses that were already operating on razor thin margins, operating simply won’t be sustainable.  

This doesn’t mean that all is lost in terms of small business. In fact, in many ways there has been a blossoming of small business in recent years. But rather than small shop owners putting out a shingle on Main Street, a growing number of entrepreneurs (especially women) are using online platforms to open businesses or are acting as direct sellers. 

Again, there were clear benefits to this approach before the pandemic, but those benefits are exponentially more important now. Namely, operating an online store entails much fewer start-up costs and lower overhead. With an online enterprise, you don’t have to pay rent, electricity, a cleaning crew, security or for staff to be onsite at all times to operate a cash register. And, just as importantly, you can reach a whole lot more customers shopping online than you can find people willing to put on a face mask in hopes of entering a small store (especially in cities filled with potentially violent or disruptive protesters, but that’s another subject entirely…).

Some entrepreneurs don’t want to sell online, but are instead working as direct sellers. Again, this avoids the costs of an actual brick-and-mortar business, but allows them to access their own network of potential customers. In recent years, the number of such businesses have exploded: In 2019, there were 6.8 million direct sellers, an increase of nearly 10% in one year. These are individuals who sell products like cosmetics, books, toys, and games directly to people they know or meet through networking. It may sound like the ultimate microbusiness, but together they generated sales of more than $35.2 billion. As with the online stores, it’s up to the individual to decide when to work and on what terms. This gives people with other responsibilities—whether that’s another job; caring for kids, parents, or other loved ones; homeschooling; or being students themselves—the flexibility they need. Nearly 90 percent of these direct sellers worked part-time, allowing them the flexibility to fit their work schedule with other responsibilities.

Policymakers should recognize these trends as good news and a workable path forward. Unfortunately, too many don’t see it as such. They want to try to keep people working in traditional employment relationships and to discourage the kind of innovation that has led to the boom in online retailers. We’ve seen that with the disastrous anti-independent contracting law in California known as AB5, which has put thousands of people out of work, and which Democrat leaders in the House of Representatives want to impose nationally through the PRO Act. 

Now we are getting hints that they also want to crack down on online selling by forcing major selling platforms to choose between selling their own products or offering that opportunity for others. That’s the simple version of what policymakers are contemplating when they discuss imposing a “Glass-Steagall Act” on the internet. This is a reference to the 1933 laws that separated banks’ investment functions from commercial banking, in reaction to the disasters that led up to the stock market collapse and Great Depression. 

Rep. David Cicllline (D-RI) explained at a recent Brookings Institution forum what this would mean if applied to online businesses: “Glass-Steagall for the internet that is not allowing someone to be both a seller of goods and services and a person who controls the marketplace. That you can be one or the other. You can’t set all the rules, control the marketplace, and also sell on it, in the way that Amazon does for example.”

What would be the impact of forcing Amazon to choose between being able to sell their own products and allowing independent sellers to use their platform to reach Amazon’s massive consumer base? Currently about 60% of the physical products sold on Amazon are sold by independent sellers. Yet, if Amazon was forced to choose it may very well choose to eliminate opportunities for others to use its platform, leaving customers with fewer options. But the businesses currently using Amazon’s selling platform would be the biggest losers: In 2019, more than 15,000 small- and medium-sized businesses on its platform surpassed $1 million in sales. Nearly another 25,000 surpassed $500,000 in sales.  

These businesses would likely have a much harder time finding these customers on their own. Of course, those businesses are free to do so: It is up to them to decide if Amazon’s marketplace provides value, and there are numerous alternative selling platforms that they could use instead. Moreover, undoubtedly there are new innovative disruptors preparing to enter the market and the online retail market will continue its pace of rapid change.    

The worst thing that could happen at this juncture would be for policymakers to come in with a new regulatory regime meant to protect the proverbial buggy whip makers and to limit opportunities for online retailers. In this new and challenging era, flexibility and innovation will be critical in navigating a path forward for consumers, workers, and businesses large and small. Policymakers shouldn’t try to shut that process down.