Regulation helps big business, not free enterprise

Over and over we see how the conventional wisdom is wrong: that Republicans and conservatives are in bed with government, seeking to unshackle business from regulation — but Democrats and liberals are busy crafting effective regulations to protect the common man from the evils of big business. As it turns out, both Democrats and Republicans love creating regulations, and big business loves these regulations.

How can that be? In the following excerpt from his book The Big Ripoff: How Big Business and Big Government Steal Your Money, author Timothy P. Carney explains that big business is able to use regulation as a blunt tool against competitors, and as a way to improve its image.

How does regulation help big business?

Excerpt from The Big Ripoff: How Big Business and Big Government Steal Your Money, by Timothy P. Carney

If regulation is costly, why would big business favor it? Precisely because it is costly.

Regulation adds to the basic cost of doing business, thus heightening barriers to entry and reducing the number of competitors. Thinning out the competition allows surviving firms to charge higher prices to customers and demand lower prices from suppliers. Overall regulation adds to overhead and is a net boon to those who can afford it — big business.

Put another way, regulation can stultify the market. If you’re already at the top, stultification is better than the robust dynamism of the free market. And according to Nobel Laureate economist Milton Friedman:

The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.

There is an additional systemic reason why regulation will help big business. Congress passes the laws that order new regulations, and executive branch agencies actually construct the regulations. The politicians and government lawyers who write these rules rarely do so without input. Often the rule makers ask for advice and information from labor unions, consumer groups, environmental groups, and industry itself. Among industry the stakeholders (beltway parlance to describe affected parties) who have the most input are those who can hire the most effective and most connective lobbyists. You can guess this isn’t Mom and Pop.

As a result, the details of the regulation are often carefully crafted to benefit, or at least not hurt, big business. If something does not hurt you, or hurts you a little while seriously hindering your competition, it is a boon, on balance.

Another reason big business often cries “regulate me!” is the goodwill factor. If a politician or bureaucrat wants to play a role in some industry, and some executive says, “get lost,” he runs the risk of offending this powerful person. That’s bad diplomacy. Bureaucrats, by their nature, do not like to be told to mind their own business. Supporting the idea of regulation but lobbying for particular details is usually better politics.

Finally there is the principal-agent problem. In a business, who is doing the actual lobbying for or against a regulation? It is typically the company’s government relations person. His or her job is to work with regulators and help the company find its way through the maze of regulation. To the extent government gets out of his or her company’s hair, the government relations executive becomes less important.

3 thoughts on “Regulation helps big business, not free enterprise”

  1. Regulation by definition equates to “rules” or Law and the imposition of rules is stultifying and effects Everyone. The basic example to this is the 1984 breakup of A.T.T. because it was a monopoly, and government deemed it imperative, that new telephonic competition be created. The result was that the most perfected and most economical telephone system in the world was subdivided into a megaplex of baby companies who knew nothing about telephony. The costs of service went up, the quality of service went down, companies failed and then were merged, the nation stumbled through its wireless infancy, more cost, more mergers, worse service until after long years we now still have A.T&T. , Verizon and Vonage as the major players. ATT went from 1,200,000 employes to its current level of about 500,00 and its competitors probably number another 400,000 for a Net Job Loss in 26 years of about 33% vs 1984 levels. This in itself may not be entirely a bad thing, until you have consistent problems with dropped calls, service disruptions, garbled transmissions as you drive your car and a general disgust with your Phone Service which sucks, and changing companies doesn’t help. it’s just another game of musical chairs. Now ask yourself when was the last time you stuffed far too much money into a Payphone? It used to cost a “dime” but hey, you wanted choices and now you got them. The Phone companies, like the Electric company have the exact same motto: “Consumer, it sucks to be you.” I hope you found this treatise on “regulation” to be useful. Moral: Regulation is “Necessary” but not at the expense of feeding Corporate Greed, and this same analogy applies to the housing industry, the auto industry, and most especially the banking industry. They need to be “brought down” to a basic level of “Financial Decency” by decent people. Hope this “cleared up” what’s wrong with America?

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