Big Government and Big Business

Statement

We've seen how liberty creates prosperity, and how government interference with our economic liberty distorts investment decisions and makes us worse off. But some people think we need a strong government to protect us from powerful economic interests. That theory sounds reasonable--if you don't know what it's like to run a business and you don't pay any attention to how government works in practice.

But in practice, even large businesses don't have anything like the power screenwriters give them in the movies. As the late Harry Browne used to say, "No matter how big a business is, you don't have to deal with it; there's always an alternative--including not buying at all." Show me a business that treats its customers the way the Post Office and the Motor Vehicle Administration do, and I'll show you a stock you should short.

And in practice, career politicians and industry regulators almost always use government to advance the interests of the largest and most politically connected businesses rather than their smaller competitors or their customers. Indeed, when I ask people to give me an example of a business from which they need to be protected, most reach for government-sponsored monopolies, like the old AT&T. Occasionally someone mentions a firm that figured prominently in the credit meltdown of late 2008, but those firms would no longer exist if it weren't for their political clout. As a purely economic matter, the free market was all set to discipline those firms with bankruptcy until the government stepped in.

The truth is that government tends not to protect us from economically powerful businesses, but rather to protect politically powerful businesses from us. Licensing laws are a great example. If you live in a city, you probably live under laws that require cab drivers to be licensed and to charge a certain prescribed rate. But if you think those laws are there to protect you, think again. The licensing requirement tends to keep prices higher by limiting the number of cabs. In addition, minimum price rules tend to reduce price competition by existing drivers. Consumers lose both ways: It's harder to catch a cab, and we have to pay more when we're lucky enough to catch one.

Do these laws exist to benefit the cabbies, then? Hardly! Very few cab drivers have anything like the capital necessary to buy a cab medallion in a major city. (It's up to $600,000 per cab in New York City, according to Timothy Sandefur's recent book, The Right to Earn a Living.) So instead, a few large companies buy as many medallions as possible and lease them out to drivers at rents that may require a relatively poor driver to work the first five days of the week just to cover the lease payment for the medallion. Who wins? The big companies that have the capital to buy medallions, of course. The government's involvement doesn't counterbalance economic power; it creates it. And once government comes down on the side of restricting competition, we shouldn't be surprised to find stories like the 2010 story from Quincy, Illinois, where officials arrested a guy for giving drunks free rides home. They actually set up a sting to catch that guy!

Other types of government regulation work in much the same way. We touched on the problem of "regulatory capture" in an earlier essay on environmental regulations. In other realms as well, Big Business and Big Labor routinely tell Big Government what the regulations should say. And when Big Government comes through for them, they reward the compliant officials by making sure they get re-elected.

This is not an accusation of graft or even bad faith; it's just what happens once we accept the idea that government should intervene to change free-market outcomes. Regulation is costly, so businesses hire lobbyists to minimize the regulatory burdens that fall on them. The overhead costs of employing so many lobbyists are much easier for big companies to bear, so they typically wind up hiring the sharpest lawyers and spending the most money on lobbying efforts. And once they attain that favored insider status, the temptation to use it against their competitors is hard to resist. In this way, government ends up magnifying the dominance of the biggest businesses instead of neutralizing it.

Writing in the Cato Policy Report in 2010, Tim Carney gave a modern example from the running shoe industry. It seems that Nike left the Board of Directors of the Chamber of Commerce because Nike wanted government to regulate greenhouse gases; this was taken in some quarters as a sign of high-mindedness by Nike. But in fact, it was easy for Nike to support domestic greenhouse gas regulations because Nike makes its shoes in Asia. But New Balance, Nike's smaller competitor, makes its shoes in New England. Nike's support of regulatory burdens for shoe manufacturers would actually help Nike because it would significantly raise its domestic rival's costs.

At a 2010 candidate forum in Silver Spring, someone asked candidates for county council to summarize all the steps he would have to take in order to start operating a food truck selling Jamaican food. One staffer responded that the first thing to get straight was that it was going to take a long time to get the necessary approvals. An incumbent councilman then explained that the county would not be able to license the truck for operation near an existing Jamaican restaurant because that would raise "competition issues." When a challenger for office observed that it's no wonder people don't start more small businesses in Montgomery County, he was shouted down by the other incumbents, who rallied around this nakedly protectionist regulatory scheme.

It's worth recalling that we find ourselves here on Earth under circumstances that require us to work to feed ourselves. We have material needs, and we satisfy them through economic activity. The person in Silver Spring who wanted to earn a living selling Jamaican food was not asking for any special privilege that ought to require a government license; he was not asking government to make anyone buy food from him. He was asking only for a liberty he was born with, no matter where he was born: the liberty to supply something of value to his fellow citizens at a mutually agreeable price. When government attempts to revoke that liberty, it imposes a burden that falls heaviest precisely on the people who are most in need of economic opportunity. When a majority of us finally come to understand that, and vote that way, then--finally--the era of Big Government will truly be over.

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