Ok, Break My Leg, But then Break Both of My Competitor’s Legs
In a previous post, I argued that government regulation is both unnecessary and harmful. An obvious question is why do companies accept and even endorse government regulation. There are two answers to that question. The first answer is fear. Nothing in the world threatens private business more than government. When companies consider the profitability of entering a new country, one of the biggest risk factors is the political risk. The companies assess the country’s track record on private property, regulations, taxes, and changes in government. Many ventures fail because the political risk is too high. The United States also has political risk. However, because of the size and importance of the US market, the US government has a lot of leverage to push businesses around and get away with it. Companies try to reduce the threat by taking a conciliatory stance. Sometimes, the companies try to stave off the threat by self-imposing regulations, but this tactic does not always appease the government.
The second answer is that a company will try to turn the regulations to its advantage at the expense of it competitors. When government threatens regulations, the company agrees then asks for protection from competition. The company will argue that since the regulation will increase the company’s expenses, the government should pay the company a subsidy, or erect a tariff on foreign competitors. The company will even go so far to request stronger regulation that will prevent smaller companies from entering the market. Eventually, the regulation will be so heavy that the market completely stagnates, but stagnation favors the large established company. In a stagnate market, new companies with new ideas cannot grow and challenge the established companies.
In the end, consumers suffer. With less competition and fewer choices, prices go up and quality of service goes down. Innovations are locked out of the market, so technological progress slows down. Eventually, consumers rebel and demand better service through deregulation and more competition. Once deregulation begins, the older company discovers that it is no longer equipped to compete in an open market. It has become a dinosaur, with high inventories, bloated pay rolls, and poor products. In desperation, the company threatens mass layoffs if the government does not bail it out. However, government bailouts will not correct the underling problem that the reliance on government regulation destroyed the business.
The second answer is that a company will try to turn the regulations to its advantage at the expense of it competitors. When government threatens regulations, the company agrees then asks for protection from competition. The company will argue that since the regulation will increase the company’s expenses, the government should pay the company a subsidy, or erect a tariff on foreign competitors. The company will even go so far to request stronger regulation that will prevent smaller companies from entering the market. Eventually, the regulation will be so heavy that the market completely stagnates, but stagnation favors the large established company. In a stagnate market, new companies with new ideas cannot grow and challenge the established companies.
In the end, consumers suffer. With less competition and fewer choices, prices go up and quality of service goes down. Innovations are locked out of the market, so technological progress slows down. Eventually, consumers rebel and demand better service through deregulation and more competition. Once deregulation begins, the older company discovers that it is no longer equipped to compete in an open market. It has become a dinosaur, with high inventories, bloated pay rolls, and poor products. In desperation, the company threatens mass layoffs if the government does not bail it out. However, government bailouts will not correct the underling problem that the reliance on government regulation destroyed the business.
Grace, Love & Peace August Ecklund at 10:27 PM
5 Comments:
You post sucks. Deregulation sucks.
Sincerely,
United Airlines and American Airlines
Great post!
Sincerely,
Southwest Airlines
My point exactly.
Thank you.
I agree with much of your post. In fact, I almost responded to your Aug. 4 post with the comment: But big businesses love big government, because the politicians are bought and paid for, and they can keep their monopolies and semi-monopolies propped up while their product stagnates and prices rise. That's seems to be how pharmaceutical companies have such large profit margins, etc.
The key questions are, what kind of government will actively resist cozying up to big business? What kind of government will actively foster a free and open market? Which regulations are essential to protect our citizens from the poisonous biproducts of production, and which are unnecessary impediments? I know you are against regulation as a matter of principle, but I, for one, do not trust corporations to regulate themselves when they are selling products or spilling biproducts into our air and water. BTW, look forward to seeing you soon!
To answer your first question, no government is the best government. Other than that, the more limited the government the less likely that it will cozy up to corporations. In theory, a constitutional republic should limit government, but our government was designed to be a constitutional republic. Clearly, our democracy has failed this test.
No doubt, business should be responsible for the poisonous byproducts of its production. However, the EPA and its regulations simply license well-connected companies to pollute. The EPA sets limits on the amount of emissions a company can produce. As long as the company remains within those limits, the EPA absolves it of responsibility for any damage caused by the emissions. The company lobbies the EPA to help set an acceptable limit, leaving the company with no incentive to further reduce the amount of poisonous emissions it produces. A much better system would entail dismantling the EPA and taxing the company based on the amount of pollution it produces. The rational being that air pollution damages private property, so the tax money will help repair the damage. Local communities should collect the tax, because the company’s pollutants affected the local community directly. Also, since the company can reduce its tax by reducing its pollution output, than it has a greater incentive to produce fewer emissions. It will seek better technology that will reduce the amount of poisonous byproducts.
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