The Myth of Deregulation

by James Tuttle

The Myth of Deregulation

The following article was written by Dawie Coetzee and published on the Artisanal Cars, November 5th, 2011.

This has to be said sooner rather than later, especially in light of the inclusion among all the sound and salutary demands of the Occupy Wall Street movement of the demand for more regulation. The danger is that meeting this demand will leave the offending corporations even more powerful than they have hitherto been.

However fictitious the little gem doing the rounds, which places the EU regulations on the sale of cabbages at 26 911 words, a cursory search will reveal the general consensus that such a level of regulation, be it real or imaginary, is at best absurd and at worst draconian. Most people have a healthy abhorrence for petty bureaucratic interference in the form of all manner of regulations. My fear is that an undefined and unqualified demand for financial regulation might leave this abhorrence unarticulable. And it is my belief that articulating this abhorrence is more necessary than ever.

Corporations nest in regulation. Corporations cultivate regulation for their own purposes. The corporations that are responsible for our current problems are not the products of Industrial Revolution-era laissez-faire policies; they are very much the product of modern controlled capitalism. It is certainly not a case of a few maverick operators breaking the rules. Our current predicament has come about by the corporate majority obeying the rules.

It is not merely that they have adjusted to state regulation. It is not even that they have manipulated regulation to suit their own ends. They have actively sought regulation, have nurtured and nourished regulation by subtle and unsubtle means. They have done this to establish and maintain a state of oligopoly impregnable to unforeseen competition; to render their products indispensible to the consumer, and thus also themselves as exclusive providers of their products; to maintain a state of perpetual unsaturation in markets that by rights should by now be oversaturated many times over.

The corporate requirement for regulation is simple: that compliance – which includes the onerous processes of providing proof of compliance – should be relatively easy for themselves and highly troublesome for anyone else. It is the latter part that is often overlooked: corporations gladly inconvenience themselves if they thereby inconvenience actual or potential competitors more. That is how the corporations have come to be as powerful as they are: by causing sanely-scaled alternatives to be regulated out of existence.

Corporations use many means to cultivate regulation. Provocation is a favourite: corporations keep pushing governments’ buttons until they get the regulations they want. Conversely one thing they cannot do is overtly to demand the regulations they want, for negative public sentiment is too convenient – and safe – a tool to risk losing. Corporations need to maintain the myth that they do not want regulation. Regulation demanded by incorruptible paragons of virtue in the face of corporate opposition will not be questioned, even if it plays directly into corporate hands. Hence all the “free market” rhetoric. Hence, also, the misnomer “deregulation”, which is in fact an edifice of regulation no less exacting than any other which merely happens to favour the corporations. For what the world requires is real, literal deregulation: but the word by which to demand it has been stolen.

Likewise a market that is free in any intelligibly rational sense of the word is the one thing the corporations will not be able to survive.

I have no proof one way or the other, but I would not put it past certain corporations deliberately to err in order better to create a context in which they are unassailable. Did BP dump crude oil in the Gulf of Mexico on purpose to provoke a response from government that would be detrimental to some or other rival? It might well have been worth whatever cost BP might eventually have incurred in clean-up and compensation.

Some corporate acts are not explicable in any other way. Fixing the Ford Pinto exploding fuel tank thing in the early ’70s would not have hurt the profit margin on the Pinto materially. The very ease with which Ford could have made good is often cited as a case of “corporate callousness” and an argument for stricter regulation. But by leaving the thing alone Ford could provoke ever higher hurdles for European and Japanese competitors to jump if they were to compete against the Pinto in the US market, hurdles it turned out many found themselves unable to attempt. This was at a time when imports had been eating into the US market for a decade, but when a fresh fuel crisis gave smaller, better designed, imported cars a sudden advantage. By narrowing the import field through provoked regulation Ford ended up with a greater market share to itself.

Now, many will counter that the imported alternatives were eliminated by the regulations because they were “unsafe”. The truth is that their manufacturers could not afford the processes by which they were required to demonstrate compliance with, nor the extra component production facilities to make parts that are no safer but merely happen to meet, the specific requirements of the regulations.

And this does not even begin to address issues of personal responsibility expected from drivers, in the sense that any vehicle is safe in the hands of a driver who is adequately skilled, alert, and sensible. The regulatory scenario thus cultivated promotes the culture of the unskilled, inattentive, and indifferent driver, consistently with the corporate desire to sell to as broad a market as possible by maintaining dependence on motor vehicles in the vast majority who have no particular interest in using them properly. And the increase in vehicle traffic thus generated in turn increases the justification in demanding ever stricter levels of safety.

And thus regulation breeds the “need” for more regulation, and cui bono? Not ourselves, not even if we did not count creative liberty a spiritual prerequisite for all lives to be meaningful.

Would a sudden abolition of regulation put things right? Probably not: but the operative word is sudden. Slow haste is instead required to dismantle this edifice. At the very least it should not be built higher: and that needs to be understood when deciding exactly what to demand when things like the Wall Street protests provide the opportunity to make demands.

3 responses to “The Myth of Deregulation

  1. “sound and salutary” demands of the Occupy movement?

    And some people here say I am being unfair when I associate the “libertarian” left with the Occupy movement. I am only repeating your own statements (and in context) – and I did not torture the statements out of you, they are made voluntarily (again and again). Whether it is savage mobs of Egypt or the blame-the-jews-for-just-about-everything Occupy Wall Street crowd (exposed by the late Andrew Breitbart) the support of the “libertarian” left is obvious.

    As for “Wall Street” – the real opinions of “Occupy Wall Street” were made obvious when they marched right past the home of George Soros (an arch Wall Street Speculator) without shouting anything – to go right over to the home of Koch brothers (far away from Wall Street – both geographically in the city, and financially) – and then the “Occupy” mob (made up of the usual suspects – Marxists, Islamists, Black Flag “anarchists” and on and on) screamed every bit of abuse they could think of.

    Still on “corporations”.,…..

    First of all the Occupy types could not care less if a big enterprise is corporate or privately owned – they hate rich people because they are rich (period).

    Nor are “corporations” the driving force of regulation anyway. Of course corporations (just like family or individually owned business enterprises) offer try and get special deals for themselves – protecting their own enterprises from regulations and hitting their competitors (ideally, from this point of view, keeping potential competitors out of the market entirely).

    However, this is over regualtions that are going to happen anyway – the primary source of regulations is not “the corporations” it is the intellectuals (in academia and outside) and their sounding board the media (including the entertainment media). The businessman is nearly always shown as the bad guy (in every establishment history book or Hollywood film) – so that opens the door for the regulations (then the people in each enterprise do the best they can to try and limit the damage to their own enterprise – and tweek the regs to hit their actual or potential competitors).

    This was less true in the 19th century (when business had more influence than it does now) – but it was still basically true even then. For example,t he Interstate Commerce Commission (1887) was indeed used to maintain the railroad cartel (against companies that wanted to charge less for freight and passengers) – but regulation was comming anyway (indeed it had already arrived in many States) so the fight moved from trying to prevent regulation (no longer possible) to trying to take advantage of it. See Milton Friedman “Free To Choose” specifically the chapter “Who Protects the Consumer”.

    By the 1960s no one benefitted from ICC regulations (not even established railroads – who were castrated by them) – but that did not stop the regs. And it is true for just about every other industry.

    Companies (or individually owned enterprises) often try and make deals when the regulations first start comming (when govenrment first gets involved in this or that industry) – but, eventually, even the established players (who pay the campaign contributions and so on) get hit by the regs. In the end everyone loses – apart from the government machine itself.

    This is because, contray to both the Marxists and the Black Flag “anarchists”, business (“capital”, “the rich”, “the corporations” whatever you wish to use) does not (repeat not) in the end control government, Lobby work and bribes can (for a time) mitigate the damage to one’s business (and turn the attention of the government to hitting actual and potential compeitors), but in the end one’s own enterprise is going to be hit also.

    More regulations are going to come (they always do) and they hit the established enterprises – the very people who cut the moral ground from under their own feet by trying to make deals with the government when the regs were first threatened (always in the name of such things as “protecting the consumer” or “protecting the worker” of course).

    Trying to make deals with the govenrment is, in the end. as dumb as all that money that various business enterprises (especially in the fiancial industry) gave to then Senator Obama and to Senator Dodd and Congressman Frank.

  2. By the way there was not much on the actual “myth of deregulation” in the post.

    In reality both Federal and most States have vastly inceased regulation over the years. And some “dergulation” has been nothing of the kind.

    For example, Californian “electricity deregulation” included price controls (thus cutting at the very heart of what a market is) and included a forced seperation of producion and distribution (apart for government owned power companies – such as the L.A. one).

    The forced seperation of production and distribution (wholesale and retail) is part of the “perfect competition” misconception of what a market is (the neoclassical misconception) that the Austrian School has been fighting for a century.

    It leads to the crazy antics of “anti trust” and “competition policy” – which is based on the false ideas of the perfect competition view of how a market should operate.

  3. On the concept of the “corporation” itself…..

    There is a lot of confusion between specific government statutes – and the actual idea of limited liability.

    There is a similar confusion on the matter of universities. With some people thinking (even “great classical liberal thinkers”) that the state created universites (of course a classic form of corporation or college). The state actually created some universities (just as the state has passed many statutes on corporations) it did not create the concept.

    The actual idea of limited liability (the concept of the corporate form) does not (repeat not) come from government. For example, it was well developed in Canon Law (Church Law) when “the state” was just various hairy Warlords. It was also covered in private Law Merchant (the ideas of a “trading pot” of money and people risking what they put in the pot, but not the shirts on their backs – if their trading partners agreed to this in advance).

    There is nothing unlibertarian about the concept – as long as people know, in advance, what sort of association they are chooseing to trade with.

    And, of course, the option of trading with non limited liability enterprises remains – if one is happy to pay higher prices and accept less choice in goods and services. For example, one does not need to trade with an insurance company – if one is happy to pay the higher prices needed to get Lloyds “Names” to risk the shirts on their backs.

    However, none of the above should be mistaken for the idea that all is well.

    It is very far from well – very far indeed.

    A series of statutes and regulations (vast amounts of regulations) have undermined the control of shareholders (owners) over corporate managers – thus undermining the vital connection between ownership and control (at least to some extent – although the ulimate sanction of selling one’s shares and walking away remains).

    Also tax law (specically high rates of personal Income Tax over time – and Inheritance Tax and Capital Gains Tax) have tended to push share ownership away from individuals towards such things as pension funds (a highly negative development – as it puts hired managers under the “control” of other hired managers – with real o-w-n-e-r-s getting less of a look in).

    The differences beween the stucture of (for example) most German manufacturing companies and most British and American manufactuing companies, shows that this is not an inevitable development. Individual and family ownership and control of business, to a great extent, has been artficially undermined in both Britain and the United States.

    Although, it should be noted, that corporate taxes and regulations are now so high in the United States (a fact that rather contradicts the propaganda that “the corporations control the govenrment”) that most new business enterprises do not incorporate (in order to avoid these ultra high corporate taxes and the endles corporate regulations).

    The taxes and regulations on indivdually owned business enterprises are terrible – but, now (for the last few years actually), actually less terrible than the taxes and regulations on corporate business enterprises in the United States. The long term effects of this situation (if it persists) remain to be seen.

    Lastly there is another factor that should be considered.

    The “cheap money” or “low interest rate” policy of he Federal Reserve and other Central Banks.

    As Richard Cantillion pointed out (way back in the 1700s) this credit-money bubble boom-bust policy tends to benefit the rich at the expense of the poor (although the rich are not benefitted as much as the poor are hit – it is a negative sum game, not a “zero sum” game).

    Great inequalities of income and wealth are (contrary to the “Occupy” people) natural (as Rothbard was fond of pointing out) – but that does not (repeat not) mean that all inequality of income and wealth is natural.

    It is no accident that the areas of the world with the most extreme inequality tend to be areas with the long term (decades – indeed sometimes centuries) of a “cheap money”, “low interest rate” policy (ironically governments tend to justify such policies on “social justice”, “help the poor” grounds) – most of Latin America springs to mind.

    Indeed the entire thrust of govenrment policy in this area is to try and artificially reduce interest rates by expanding the amount of “money” available to be lent, beyond what real savers (i.e. people who make the sacrifice of present consumption in the hopes of furture returns – time preference Frank Fetter stuff) would provide. This Ludwig Von Mises spent his life explaining.

    So when the “Occupy” people denounce the Federal Reserve they are actually, for once, on to something. But the effects of getting rid of the Fed (or the Bank of England or….) would be the exact opposite of what they hope. Not more “easy credit”, but credit being much tighter, not “lower interest rates” (or no interest rates at all), but much higher interest rates.

    Not a world without work or effort – where they could all “hunt in the morning, and fish in the afternoon, and be critical after dinner, without ever being a hunter, fisherman or critic – for society will organise production….” (Karl Marx “The German Ideology 1845” – although it might be a line from “Star Trek: The New Generation” or some other bit of Hollywood leftism, of Prof S. Harvard nonsense). Instead it would actually be an world of “thrift, hard work, and self denial” exactly what the Occpy people hate most in all the world (even more than they hate “the rich”).