Government and Business

A perennial complaint that people make is about the “control” big business has over government.  And, to be honest, there’s a lot of justice in those complaints.  And so, the people making those complaints argue we need to give government more power to regulate business.  More power to regulate business.  More power.

To be exact, that is exactly the exact wrong thing to do.

Here’s the problem.  The more power you give government to regulate business, the more valuable you make influence over the government, and thus over that regulation.  And the more valuable you make it, by definition, the more people or organizations (like big businesses) will be willing to pay for it.

Thus, the more you try to increase government power in order to regulate business, the more the biggest businesses will attempt (usually successfully) to influence that regulation in their favor.  It’s almost invariably the small businesses that end up paying the price–regulatory compliance is usually easier for big players than for small fry, and so the result is reducing competition to the big players.

The process is called “regulatory capture” And I’ve written about some examples of it before.

One might attempt to limit that through laws/regulations that limit what businesses are allowed to do in order to influence government–restricting things like campaign contributions.  There are, however, two groups that will stridently resist any meaningful attempt to do so (while, perhaps, allowing things that give the appearance of dealing with it while still allowing plenty of back doors):

  • Businesses with a vested interest in influencing government
  • Politicians with a vested interest in receiving the contributions that will help them win the next election.

It’s the mice voting to bell the cat while the cat doesn’t want to wear any such bell.

Thus, short of government simply taking control of business, “nationalizing” it, all increasing government regulation does is make the problem worse.  It becomes an incestuous mix of government regulation essentially written by the very businesses being regulated such that it benefits them and reduces the threat of competition.

“But wait!” Some might say. “Government can nationalize the businesses, thereby eliminating the problem. Go, Socialism!”

The problem there is that you run right smack into the issues that Hayek so ably described in “The Road to Serfdom” and I touched on, perhaps less ably, here. Once you take that step, the only way to make it work is through a totalitarian regime where force and threat of government sanctioned violence replaces the operation of prices and the market in determining the allocation of resources such as human labor.

There really is no way increasing government power can resolve the problem of “big business” influence over government without creating the worse problem of totalitarianism and reducing the population to serfs of a central Nomenklatura.

There is, however, one way to helpfully address the problem.  That answer is found in my third paragraph here, specifically: The more power you give government to regulate business, the more valuable you make influence over the government, and thus over that regulation.  And the more valuable you make it, by definition, the more people or organizations (like big businesses) will be willing to pay for it.

You see, the reverse also applies.  The less power you give government to regulate business (or, in general) the less valuable you make influence over that government and the less any businesses or individuals would be willing to pay for that influence.

If you’re truly concerned about the influence business has over government, the answer is not to increase the power of government, but to reduce it.  Strip government of the large majority of its power to regulate businesses and people in general and you eliminate the incentive, the value, of influencing that power.  The worst a business can do you you, after all, is refuse to do business with you.  They cannot (without the aid of a government) prevent you from taking your business elsewhere.  With government, they can send Men With Guns(TM) to ensure you do business exactly as they wish you to.  And even if you can “do business elsewhere” they can make sure that nobody else can offer terms of which they disapprove.

Reduce government involvement in business to legal sanctions against use of force or fraud and most of the problem of “government influence” by business goes away.  Mind you, it won’t be easy.  There are two groups that will object strongly to it:

  • Businesses whose influence over government gives them an advantage over new competitors
  • Politicians who benefit from people attempting to buy their influence.

The only thing that will make it work is creating a climate of opinion where that second category starts seeing that it’s politically profitable to disentangle themselves from the monied interests.  And that will be more people recognizing that the “fix” for the problem lies in smaller, not larger, government.

“Small is Beautiful” was a catchphrase of the counterculture movement of the 1970’s, generally aimed at businesses and in many cases failed because it ignored the value of efficiencies of scale.

But when it comes to government, small really is beautiful.

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