Excessive Government Regulation Perverts Politics and Hobbles Free Market
The line goes something like this: Stricter government oversight and regulation of business is necessary because the greedy Wall Street speculators and large multinational corporations have unduly influenced the political process for selfish gain, enriching themselves at public expense and impoverishing the common working people through unfair domination of the world’s resources, resulting in a criminal concentration of power and wealth. We need more government control of corporate activity to stop these looters, and to provide for a fair distribution of excessive corporate profits to the ordinary working people.
If you go to any leftist website you will find substantially the same message in all their mission statements. Although these sentiments have the appearance of taking-up for the little guy, the reality is that the largest corporations almost always favor extensive government regulation, and often draft the laws and regulations for their own industries. Why would they do this?
The answer is quite simple. Large companies prefer government guaranteed profits to the risks of a competitive market. They have the financial resources and political clout to draft regulations in a way that appears to protect the public, but actually results in the elimination of competition from smaller companies that do not have the resources to comply with the proposed laws. Also, since many of the largest companies have union contracts these regulations are normally tailored to limit the damaging effect of competition from smaller, more efficient nonunion companies. Although these laws may hurt small companies and require the public to pay higher prices for the same products or services, the large corporations, unions and politicians are all benefited, and the public is duped into thinking that the government is “doing something” to protect its interest.
The largest corporations normally oppose deregulation, and have a history of “working with government” to achieve results that benefit themselves, the unions, and the politicians. The largest trucking companies, The Teamsters, and The American Trucking Associations all opposed the deregulation of the trucking industry that was mandated in the 1980 Motor Carrier Act. They all argued against deregulation by predicting that service would decline and that small communities would find it harder to get any service. The largest companies supported the old tariff system established by the 1935 Act, which limited competition by requiring government approval of new routes and freight charges. When most of these regulations were eliminated by the 1980 Act, freight rates plummeted by almost 25%, and many of the largest trucking companies went out of business because they were too inefficient to compete. However, economists estimate that rate reductions as a result of the deregulation saved shippers and the public as much as $62 billion a year.
More recently, most of the largest health care providers and Wal-Mart supported Obama’s Affordable Health Care Act because smaller companies could not comply with the rules, and the largest players were promised guaranteed business in exchange for their support. For similar reasons Wall Street overwhelming supported Obama in the 2008 election, and he, in turn, helped them by supporting financial regulations that gave them an advantage over smaller, local financial institutions. According to a recent Washington Post article, Wall Street firms made more profit during the first two and one-half years of the Obama Presidency than during Bush’s entire eight years. The Post also reported that contribution data from 2011 shows that Obama has brought in more money from employees of banks, hedge funds and other financial service companies than all of the GOP candidates combined.
Extensive government control of and involvement in business perverts politics and the market by giving elected officials opportunities to reward supporters and punish enemies. For example, large portions of Obama’s stimulus money have gone to union-controlled businesses (that support Obama), government employees (that support Obama), for the extension of unemployment benefits (to buy the votes of those dependent on government favor), and to organizations that have no commercial value but do have political value by providing a vehicle to funnel taxpayer money to Obama supporters while giving the appearance of doing “good”(such as AmeriCorps, ACORN, and the plethora of useless companies that receive taxpayer money to perform projects like insulation and weatherproofing for the poor, or diversity training and empowerment).
Government involvement in business results in waste because the aim of politicians is not to make a profit by producing things that consumers will want to buy, but rather to use their power to get reelected and help their supporters. Private business owners, who have their own and investor money at risk, have a strong incentive to efficiently manage their businesses by producing the best products at the best price in order to survive in a competitive market. Politicians have completely different goals. They are involved in business to achieve a political purpose, such as helping someone they favor, or benefiting some group that supports them, and, most importantly, building their own political power. Since the money is not theirs, and since their aim is not to turn a profit, they have no incentive to see that the money is used in the most efficient way.
My father built and leased commercial property in the early 1970s. Normally, he carefully screened his tenants to make sure that they had the business experience and financial strength to survive and pay rent. However, when he was approached by a potential tenant that was a part of a government program to promote minority business he did not bother to investigate, since the Federal Government guaranteed the lease, and he knew that he would get paid with taxpayer money if the tenant failed. Of course, the tenant did fail, and my father continued to collect rent from the government for the balance of the lease. The ordinary taxpayers were hurt because their money was wasted; other more qualified tenants were hurt because the space was not made available to them; the city was hurt because there was a government-sponsored empty building rather than a business that would employ people and pay taxes; and minority business was not helped by a program that gave money to people who could not compete. My father was benefited because he got other people’s money at no risk, and the politicians were benefited because they appeared to be “helping” the disadvantaged, and were able to buy minority voter support with other people’s money.
This example is a microcosm of how these government programs work, and explains why they damage hard working taxpayers and the economy without helping anyone except the politicians and the businesses that get the money of others for nothing.
Extensive government control of business for political ends results in this sort of “crony capitalism,” where the success of a business is dependent on political favor rather than skill at producing superior products that the public wants. The most recent example of this sort of government-sponsored corruption is the Solyndra debacle. Obama’s administration gave over $530 million of taxpayer money to a “Green Energy” company that was controlled by a billionaire supporter of Obama’s 2008 campaign. Even when the energy department knew that there was no viable market for Solyndra’s products, and that the company was in serious financial trouble, those facts were hidden from the taxpayers because Solyndra was supposed to be one of the “Green Energy” stimulus success stories. The company has now failed, and the taxpayers are the losers rather than the politicians and their wealthy supporters, who were illegally given secured creditor status superior to that of the government.
In a recent Heritage Foundation article, Lachlan Markay reported that a new book by Hoover Institution fellow Peter Schweizer details the startling extent of the cronyism that has pervaded President Obama’s “green jobs” push. According to Schweizer, four out of every five renewable energy companies backed by the Energy Department was “run by or primarily owned by Obama financial backers.” Those companies’ “political largesse is probably the best investment they ever made in alternative energy,” Schweizer explains. “It brought them returns many times over.”
“Such is the inevitable consequence of large government interventions in private markets…”
“…These programs might be the greatest—and most expensive—example of crony capitalism in American history. Tens of billions of dollars went to firms controlled or owned by fundraisers, bundlers, and political allies, many of whom—surprise!—are now raising money for Obama again.”
Corporations can only truly harm the public with the help and support of the government. In a free market that is undistorted by government control or intervention, competition guarantees that businesses will be forced to offer the best products at the best prices. Any business that tries to take advantage of the public will soon be driven out by competitors that can provide what the people demand. In addition, when the government stays out of direct involvement in business, taxpayer money is not being used to support politicians and their corporate friends. If the government limits its role to the establishment of neutral rules of fair play, that are not intended to help or harm any particular person or group, then the public’s interest will be protected and no one will have the opportunity to profit by government favor rather than merit.
The public has a legitimate interest in commercial laws that prevent fraud and the destruction of assets that we all hold in common, such as the environment and national lands; but the public is harmed when the laws give the government the power to benefit specific people, companies or groups at the expense of others.
We need your help! If you like PunditHouse, please consider donating to us. Even $5 a month can make a difference!
Short URL: https://pundithouse.com/?p=7803
