The regulations are indeed written by special interest groups. That's because government is a central point of failure. The less central points of failure, the better the system.

Imagine you have a situation where McDonalds has a legal monopoly on restaurants in a state. Is their food going to be any good? They have very little incentive to produce good food, as there are no other restaurants which can compete with them. In fact, we could even see this situation for ourselves in Cuba. The government restaurants tend to have very bad service and very bad food.

Imagine if you have a situation where there is only one organisation which has the ultimate say in matters of law. They have a monopoly on law. Is their law going to be any good?

On the other hand, imagine if there are many organisations which you can go to which will provide arbitration. They're all competing, so they have the incentive to promote a reputation of fairness and impartiality. Now, you might say "But what's stopping someone rich and powerful from buying one of these courts?" There are several things, but first apply that to government courts. What is stopping someone rich and powerful from buying a government court? Well, very little. The judges have impunity, so if a judge is paid off and makes a ridiculous decision which punishes an innocent, the judge doesn't have liability. In a polycentric law system, the arbitration companies want to show that they are impartial, and if a judge makes a stupid decision, he may be investigated, fired, perhaps even sued because of his liability for punishing an innocent. Or, people may just decide to disobey the judge if they believe the decision is unfair, as the judge has no legal privilege.

Basically, if there is one organisation with a monopoly on law, you have very little recourse. If there are many organisations providing law, then you can have potentially unlimited sources of recourse.