Guest Author Baleigh Scott wrote this article to convince people that, principally, “government is the disease for which it claims to be the cure.” In order to inform her blogged opinions (The Indisputable Dirt), this Public Policy Analyst reads political editorials and classical literature. Her background is in Economics and Creative Non-fiction, so her writing is directed to an interest in Money and Story-telling. The welfare state is her perfect subject. Enjoy.
When I mention the dangers of regulating business (as I do incessantly)— of giving a panel of flawed human beings the power to create and enforce arbitrary rules and standards within an industry— people tend to assume that I’m going to focus, not on “proper” regulation, but on its evidently corrupted human manifestation.
The expected argument goes something like this:
“We can’t expect people, including regulators, not to act in their own self-interest. If we grant government agencies the special power to regulate businesses, the biggest and most powerful businesses will inevitably find ways to use their wealth to influence those regulatory agencies. In one way or another, the given regulatory agency will become no more than a puppet for the industry’s big wigs. As a result, the very agencies designed to prevent huge companies from using their size and influence— at others’ expense— will end up granting the wealthiest companies more power and freedom than the free market ever could. Thus, if our goal is to curb the power of big businesses, we’d be better off without the regulatory agencies in the first place.”
There is a lot of truth to this.
Anyone who has spent any time thinking about regulatory power, or merely observed the government commissions that exercise that power, is forced to acknowledge the risk of abuse and corruption.
The following link to articles detailing some indiscretions found to have been committed by government agencies.
The list stretches.
Although I firmly believe that a plethora of incriminating evidence is enough for our nation to conclude that regulation is a dangerous game, the above isn’t an argument against regulation per se, but only against some bastardized version of it: regulatory capture, or crony capitalism. There is more to the story.
Good Regulation, the argument continues, is prevented only by the unfortunate selection of citizens designated to regulate us. If we could but find virtuous enough people to put in charge, or sufficiently regulate the regulators, and sufficiently regulate those who regulate the regulators, etc., regulation would benefit society.
Even if we assume that regulators are not being bought out, nor that that governing agencies abet business, regulations, somewhat ironically, still grant more power and freedom to big businesses than the free market ever could by raising market barriers.
Natural barriers exist to varying degrees in every market. The most obvious barrier: Selling something requires having something to sell. Some industries have automatically capital-heavy barriers. For example, an automobile manufacturer needs a lot of very expensive equipment, skilled laborers, marketers, etc.
Obviously, the larger the barriers to the market, the more difficult it is to enter it. Regulations can increase whatever barriers to a given market exist naturally. For instance, if the government decides that a permit is required to sell lemonade, the cost barriers to the lemonade industry increase by the amount of time, money, and difficulty it takes to acquire such a permit. Whatever it cost to set up a lemonade shop before, it costs more now.
Why is this a problem? Aren’t a few companies in a particular industry sufficient to satisfy the needs of society? Maybe. The problem is not that regulations reduce the number of goods at our disposal, but that they reduce the possibility of competition.
Competition is the most effective weapon against poor business behavior that we have in our arsenal.
In a market where businesses must compete with each other for customers, one business’s poor behavior is everyone else’s business opportunity. If one business is overcharging or under-performing, another business or observant entrepreneur can profit by charging less or performing better. The lower the barriers to the market, the faster and more easily this can occur. Truly, this is how most business behavior is effectively “regulated”— not by government mandate or decree, but by competition. Businesses behave best in markets in which they are most easily replaceable.
Let me be clear: I am not suggesting that the unregulated market has no problems, only that regulations often make problems worse. Barriers exist naturally; regulations, no matter what they entail, no matter how well-intended they are, nor how virtuously they are enforced, add to them, thereby decreasing the threat of competition. Thus, while some regulations may be marginally effective tools against specific areas of bad business, they also fundamentally undermine a tool that is far, far more effective. The concept of regulation is akin to disassembling a gun in order to chuck bullets and metal chunks at an attacker. You compromise the integrity of the weapon for its constituents.
Regulation, then, is the disease for which it claims to be the cure: taxpayer-financed protection of big businesses, sustaining monopolies in its attempt to control them. Efforts to protect people from the threat of big business end up destroying the thing that works most effectively against them.
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