Why Big Business Loves Government Regulation

Basic government regulation is good. It sets forth good social order for such things as the punishment of crime. It ensures that life is fair. Much government regulation, however, is not fair. This kind of regulation involves minutiae written into law by government at the express request of their friends in big business. As you can imagine, this kind of regulation is expressly intended to benefit those big corporations that asked for (and often wrote) the regulation in the first place.
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Too much regulation? At first blush, it seems counter-intuitive, especially in a day when it seems like "too little regulation" allows big bankers to get away with highway robbery. Why should they be able to be bailed out of their stupid mistakes while the little guy is left to pay a mortgage that he can't afford? Why are big corporations able to pay their executives tens of millions of dollars in bonuses even when their companies had millions of dollars of losses in the same year? But it's true--there is too much regulation.  The reason the "big boys" are regularly bailed out and can pay themselves hefty bonuses is precisely because government regulation has made it so that they can.

Gabriel Kolko, in his book The Triumph of Conservatism, written in 1963, pointed out just why big corporations salivate at certain forms of regulation--because they help write it, and because it can be used to their advantage.  Kolko said that
The regulation itself was invariably controlled by the leaders of the regulated industry, and directed towards the ends that they deemed acceptable or desirable.

By way of modern-day example, recent health care legislation was written by--you guessed it--members of the health care industry.

Troubled Asset Relief Program (TARP) legislation in 2008 was written by the movers and shakers of high finance.  The original bill was 3 pages long, and essentially gave Treasury Secretary Henry Paulsen (former CEO of Goldman Sachs) a blank check to do anything he wanted with it.  In a similar manner, the banking industry wrote the banking reform legislation that recently passed the US House of Representatives and that is expected to pass the Senate.

As well, pending Cap and Trade legislation has been written by those who stand to benefit the most from it financially.

All of these are examples of "regulation" alright, but all are rotten to the core, because they make life less fair.

Governments grant monopolies.  There has never really been an instance of a "natural monopoly", where a company is able, all by itself, to exclude other players in the market from competing with it. The Constitution does grant the federal government the power to foster innovation by issuing patents, which are generally valid for 17 years. Beyond that, governments are not entitled to act. That hasn't stopped them from continuing to foster monopoly, however.

After AT&T's telephone patents expired in the early 1900's, 3,000 private phone companies emerged, taking away more than half of AT&T's business by offering better ideas, better technologies, and better service. Prices went down, and the consumer benefited greatly. AT&T "solved that problem," though, by lobbying government to give them a monopoly on telecommunications, which it then used to make phone calls more expensive and telecommunication technology less innovative.  It's only been since the breakup of AT&T in 1974 that competition has increased, causing costs to go down and innovations to skyrocket.

Healthy competition used to exist in a myriad of areas that we don't naturally think as conducive to participation by multiple market players, but that's only because most of us have only known monopolistic practices in these areas in our lifetimes.  Besides telecommunications, which has already been mentioned, natural gas, water supplies, and electricity were all brought to consumers and improved through healthy competition. As a result, costs went down, and customers appreciated the service they received.

But the big, well-connected "fish" began to whine to their friends in government that such competition was creating wasteful duplication. Today, with the exception of the telecommunications industry, most utilities operate with much the same responsiveness of a Soviet Communist Ministry. Why? Because they can.  Because government has taken away all of their competitors.

So, as you can see, some government regulation is good.  But not the kind that is written by specific players in business in order to benefit themselves. From that perspective, can you begin to see that we have way too much government regulation?

Comments

  1. It seems to me the key problem here is that corporations are allowed to influence our political process and our regulatory processes and they have no legitimate Constitutional right to do so. They are not persons, they are entities created by the states ostensibly to accomplish certain economic goals that would benefit the society as a whole. The Founders certainly did not intend, and even feared, that these entities would become so strong that they would control the apparatus of government, but that they have done.

    The problem we have is that there is no way to regain citizen control of government from these pseudo-citizens since they have unlimited funds and resources and we are a disorganized band of ordinary citizens largely misinformed by media owned by the same sort of pseudo-persons who have usurped control of our government.

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  2. Psst. The AT&T break-up was in 1984, not 1974.

    I have to take issue with your assertion that there is ample competition in the telecommunications space. The problem isn't a case of over-regulation or under-regulation, but rather bad regulation. As you've noted, most of it is designed to protect and promote specific players in regulated markets. That's why the AT&T break-up was so ineffectual. It mis-identified the monopoly as a horizontal rather than vertical monopoly. Instead of dividing the network from the service provider, thus opening up some true competition, it instead created 7 new (and less competent) vertical monopolies. Sure, the long-distance market got more competitive, but the overall telecommunications market got even worse. Ask anyone if Qwest is an improvement over AT&T and you'll likely get a derisive laugh.

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