I mean there is a difference between reasonable regulations and just outright picking 1-2 cheaters who bribed you for the right to offer a service that supposedly free people are willing to pay for out of pocket.
We get stories about this in Russia and China and call it Putinism and Corruption all the time.
And why is it bad? For one, real intentions are inscrutable, so it is very easy to ascribe whatever intentions you want to an action. For another, the intentions behind an action have essentially no correlation with the effects of the action, at least insofar as the intentions are not explicitly malicious (e.g. 'hurt people').
The most common alternative that I can see is "you can do whatever you want as long as it follows the letter of the law". However, that doesn't seem to work well either.