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The Battle Over Regulatory Might

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July 14, 2009 – Comments (4)

Judging from the media and political scene today, regulations to “help the environment” or “punish greed” sound too good to pass up. However good increased government regulation and control may sound, it is essential that people consider the regulatory harm that is not directly seen.

Today “Cap and Trade” and limiting carbon emissions is a top priority for Barack Obama and many politicians. To dismiss claims that this legislation would hurt the economy, corporate leaders are stepping up to the plate to support the legislation. In fact, quite a few major corporations have supported legislation of this sort over the past decade, such as Dupont, Dow Chemical, and Caterpillar. These corporations must be fighting for the noble cause, right? Not entirely.

What we hear is the supposed benefit of the government regulating carbon emissions in the name of the planet. What we don’t directly see is who pays for those regulations and how they pay for them. Regulations are not cheap to enforce or to comply with. What’s key to understand is that large corporations, who have more money and manpower than their competition, will not have a tough time working with the regulation.

But what about the smaller businesses in the marketplace? Clearly regulations that cost several million dollars per year will effect a $500 million company more than a $50 billion company. When you take this into account it is quite simple to see why many corporations are pushing for more regulation: it stifles the competition, who are forced to allocate more manpower and money to meet regulation. That money will come away from product development, wages, production, etc., and things of that sort, while forcing businesses to either raise prices or scale back on other areas of business that made them competitive in the first place.

When government pops a new regulation on the market, it requires money from the taxpayers to enforce and money from the businesses to comply with. Always take it as a danger sign if large corporations are supporting or actually encouraging government to pass new regulation. They see that more regulation means less effective competitors; history has not shown it any other way. If the corporations really felt that strongly about limiting emissions, absolutely nothing is stopping them from voluntarily doing it right now. At the heart of it, regulation often represents an indirect subsidy to corporations.

In the early part of the 20th century, hemp was a major competitor to many different industries: fuel, paper, clothing, among many others. William Randolph Hearst, a wealthy businessman who owned vast amounts of timberland used to create paper, saw hemp as a major threat to his position in the paper industry (given that hemp was a much more sustainable source for paper).  Similarly, Dupont would have had a tough time had hemp plastic been allowed to compete with its plastic made from oil and coal. Hearst, Dupont, and other corporate interests fought to criminalize hemp through government in 1937. Hemp was thrown in with the government’s scare campaign against marijuana and cannabis merely because very powerful interests were fighting for it. Because of this, one of the most remarkable and efficient plants is still illegal to grow in most states.

Regulation has this effect both at the state and federal level. Within the past year, my home state of California passed an act in the name of “animal rights.” I am a staunch believer in the humane treatment of animals, but this regulation will hurt smaller farms most (who usually treat animals better than the large-scale corporate farms) who do not have the resources to comply with complex laws. While the thought behind the regulation may have been good, it will simply give the corporate farms (who often treat animals far less humanely than smaller farms) a competitive advantage over smaller and more sustainable farms.

The problem with government regulation is that it actually takes power away from individuals, consumers, and the local level. This is precisely because it is the smaller businesses who suffer from government regulation the most, and that government regulation will increase the inefficiency of competition in favor of larger corporations. By indirectly shifting the advantage through regulation, government decreases choice, limits competition, thereby increasing prices and hurting consumers the most.

Quite simply, government regulation decreases the regulatory oomph of the individual. As more regulation and laws are constantly being proposed and passed by politicians, the fate of a business lies increasingly on pleasing government, not the individual. The power tilts to government force rather than voluntary exchange.

Unlike government regulation, in a true free market consumer regulation is indifferent to the size and power of a business. In a true free market, a business must serve the interests of the individual, not government, to survive. In a true free market, individuals searching for the best product or best service at the best price outweigh the regulatory ability of government bureaucrats.

Regulations do not fall out of the sky and suddenly make things better. They have a cost, both in the short-term and the long run. With government regulation, effective competition is decreased because of lack of resources to comply with the regulation. With a free market, competition is decreased because of nonproductive practices. Government regulation does not discriminate between productivity and wealth. In a true free market, productivity, not wealth, is rewarded regardless of size.

More cries for government regulation will often come from individuals, corporations, and politicians alike. What must be realized is that as the regulatory power of the government increases, especially so on the federal stage, the regulatory power of the people and the market decreases. Government regulation might be seen as the attractive option in the short-term, but it is only the individual’s regulatory power that can shift the economy and society in a sustainable direction over the long run. The demands of the people, not bureaucrats, pave the road of true security, freedom, and liberty.

DavidKretzmann.com

4 Comments – Post Your Own

#1) On July 14, 2009 at 1:16 PM, devoish (98.57) wrote:

I agree that the current cap and trade program is far from the best solution to excessive co2 pollution or our dependency on fossil fuels.

This is the solution to limiting carbon burning that I prefer, for many of the reasons you give.

There is no free market solution to pollution that I have ever seen work. It will never be in a companies fnancial interest to impose an expense upon itself that its competitors do not.

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#2) On July 14, 2009 at 3:05 PM, SkepticalOx (99.44) wrote:

The demands of the people, not bureaucrats, pave the road of true security, freedom, and liberty.

Yes, and the people voted in an administration and congress who clearly stated out their idealogy. For better or for worse, Obama and the Democrats are doing exactly what they promised to do if they were voted in.

And I agree with #1 on his last statement.

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#3) On July 15, 2009 at 10:45 PM, TMFPencils (99.81) wrote:

devoish:

CO2 is not pollution. Humans contribute to a mere 3% of the total CO2 in the atmosphere. It is hardly an apocalyptic situation.

The greatest thing that government can do to lessen dependence on foreign oil is to allow the market to work and the states to regulate (as they are constitutionally supposed to). Let nuclear energy expand, allow hemp to freely compete in the marketplace, and give up the notion that the federal government can manage energy effectively and efficiently.  

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#4) On July 20, 2009 at 9:23 PM, DaretothREdux (43.62) wrote:

The greatest thing that government can do to lessen dependence on foreign oil is to allow the market to work and the states to regulate (as they are constitutionally supposed to). Let nuclear energy expand, allow hemp to freely compete in the marketplace, and give up the notion that the federal government can manage energy effectively and efficiently. 

Couldn't have said it better myself.

Dare

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