Why Businesses Can't Stand Free Markets
Dan Clore
http://groups.yahoo.com/group/smygo
http://www.bloomberg.com/news/2010-12-23/why-businesses-can-t-stand-free-markets-commentary-by-veronique-de-rugy.html
Why Businesses Can't Stand Free Markets
By Veronique de Rugy
Dec 22, 2010
Bloomberg Opinion
For almost two decades, the monks of St. Joseph Abbey in Covington,
Louisiana, supported themselves by making and selling unadorned handmade
pine and cypress caskets.
But if embalmers and funeral directors in the state of Louisiana have
their way, the monks will be barred from earning a living by making
coffins without a license issued by a state government board, eight of
whose nine members work in the funeral industry.
Business people love to say how much they cherish free markets, all the
while decrying government that limits entrepreneurialism and personal
freedom.
But the truth is there is nothing most business people like less than
free markets.
Think about it. Competition is good for consumers because it keeps
prices low while increasing the quality and choices of products and
services. Yet competition is hard work for businesses. They have to
fight for customers by innovating and evolving in ways that consumers
demand.
To avoid the gritty work of fighting it out in a free market, organized
private interests -- such as Louisiana’s licensed funeral directors --
lobby the government for special regulations, preferential tax treatment
and laws that keep out competition. They lobby lawmakers to constrain
the same free markets in which they originally achieved success.
This practice has been around for as long as there have been businesses
and governments. The great economist Milton Friedman cited the example
of the Interstate Commerce Commission in his 1990 book “Free to Choose.”
Farm Power
In the late 1800s farming interests demanded that government rein in the
railroads amid the perception that they misused their power to influence
local politics and set freight rates too high. The railroads responded
by working with Congress to form the ICC, a regulatory agency populated
with industry insiders. It fixed prices and limited new railroads from
entering the business.
At the urgings of the railroads, the ICC brought the trucking industry
-- a source of competition -- under its jurisdiction in the 20th
century. It limited the number of trucking licenses, thereby
constraining entry into the industry as shipping volumes ballooned and
helping to prop up prices that would have fallen in a free market.
These and similar practices are rampant today, and not just among
railroads or funeral directors. Each year, private corporations in
America receive about $100 billion in subsidies from the federal
government, gaining an advantage over those that don’t receive such
handouts.
Double Prices
Take the Fanjul family, which controls Florida Crystals Inc. and Domino
Sugar, owns more than 400,000 acres of sugar cane farms and produces
one-third of Florida’s sugar. Yet, the federal government protects them
against competitors by imposing U.S. import quotas that maintain sugar
prices at artificially high levels. U.S. consumers and businesses have
had to pay twice the world price of sugar on average since 1982,
according to economist Mark Perry.
Why? The fact that the sugar industry spends millions in lobbying might
be one reason.
The U.S. sugar lobby contributes millions of dollars to political
campaigns to maintain federal support for the subsidies, according to
the Center for Responsive Politics. The Fanjul family alone spent
$715,000 on lobbying in 2008 and has spent an estimated $2.6 million on
political campaigns from 1979 to 2006.
Capture Theory
Such spending surely gets attention. Economists know how potent this
type of lobbying can be. In his seminal 1971 article, “The Theory of
Economic Regulation,” Nobel laureate George Stigler introduced so-called
capture theory. Stigler argued that regulatory agencies are subject to
pressure from both interest groups and the electorate at large. But, as
interest groups are better able to organize and promote their interests,
they hold power over what regulations are put in place.
Stigler also pointed out that regulation requires in-depth industry
knowledge, so regulatory agencies tend to hire directly from the very
companies they must oversee. Consider the former secretary of the
Treasury Department, Henry Paulson. The former chairman and chief
executive officer of Goldman Sachs played an important role in shaping
and directing the government rescue of the financial industry, including
Goldman. Is it any surprise that critics of the rescue say that it was
too favorable to bailout money recipients?
Big Surprise
Surprisingly, many Washington watchers were shocked to discover last
year that the most formidable lobbying force in the capital is the U.S.
Chamber of Commerce, which reported spending almost $150 million on
lobbying in 2009 out of the overall $183 million spent by industry
associations on arm-twisting and favor-seeking.
According to the data from the Center for Responsive Politics, one of
the leading contributors to the lobbying effort was the National
Federation of Independent Business, representing some 600,000 small
business owners. This shows that large corporations aren’t the only ones
who dislike competition and crave special favors such as loan
guarantees, tax breaks, lighter regulations and different government
contracting rules. These companies even have a taxpayer-backed lobbying
arm in the Small Business Administration’s Office of Advocacy.
Unfortunately, this phenomenon isn’t just concentrated at the federal
level. It is the same power of the business lobby over the executive
branch in Louisiana that has forced the monks of St. Joseph Abbey to
take the state to federal court to fight for their ability to make and
sell inexpensive caskets.
Let’s hope that any court ruling deals a blow to the practice of
entrenched businesses using government to impose higher costs on
consumers while also thwarting upstart entrepreneurs. No one said loving
free markets was easy.
(Veronique de Rugy is a senior research fellow at the Mercatus Center at
George Mason University. The opinions expressed are her own.)
To contact the author of this column: Veronique de Rugy at vde...@gmu.edu
To contact the editor responsible for this column: James Greiff at
jgr...@bloomberg.net
--
Dan Clore
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