Tuesday, December 18, 2012

Regulation That Favors Big Business

A central concern of progressives is that of large private organizations profiting in ways that harm the public at large, or that harm smaller "mom-and-pop" operations. Often this occurs with the collusion of the agencies that are supposed to be regulating them. Indeed, others would point out that in many cases, the opportunity to be corrupt would not exist without legislation regulating or banning the business activity.

This points to a need, not for anarcho-libertarianism, but at the very least to more efficient regulation that does not make worse the problem it's supposed to combat. One of the chief forces damaging regulation is that there are two kinds of interests involved in regulation: those who genuinely want to protect the public, and those who feel their organization will benefit materially from the regulation. That such a critical problem for democracy has gone so long without a name is incredible. Bruce Yandle calls them Bootleggers and Baptists:
"Baptists" point to the moral high ground and give vital and vocal endorsement of laudable public benefits promised by a desired regulation. Baptists flourish when their moral message forms a visible foundation for political action. "Bootleggers" are much less visible but no less vital. Bootleggers, who expect to profit from the very regulatory restrictions desired by Baptists, grease the political machinery with some of their expected proceeds. They are simply in it for the money.
This, from a post at Madmen, Intellectuals and Academic Scribblers subtitled "Politics Makes Strange Bedfellows". Do read it.

For example: a few years ago in Berkeley, California there was a well-meaning but incredibly poorly thought-out initiative on the ballot to require that all coffee sold in Berkeley be certified fair-trade, shade-grown, organic. It was noted by many local coffee houses that a certain gigantic coffee chain would have lawyers and deep pockets to do this very easily, and ironically, many small businesses would be badly damaged and a large corporation would benefit from this progressive law. The potential for big-company "bootleggers" to profit from the activity of baptists" is clear. (The article I link to gives another example with environmentalists unwittingly benefitting Big Coal.  Environmentalism is great, but there's probably a way to do it that doesn't favor big business.)

The bottom line: free-market supporters become frustrated when progressives support initiatives that end up favoring big companies. If this seems confusing, then keep in mind that "capitalist" is not the same as "favors big established companies against small ones". In fact, it's more like the opposite.


Philippe Roy said...

I think this topic will be a tough discussion for progressives, as the need for detailed expert regulation is poised against the inability of the layman to assess it's legitimacy.

It's not simply about business, it's also about justice. The latest HSBC judgement has me wondering who regulates the DOJ? It seems to me that regulating the regulators could lead to infinite regression. So what works?

Michael Caton said...

In theory, We The People are supposed to be regulating the DOJ et al. Especially in a complex civilization this doesn't always work, but I don't have a solution there. My goal here is not to argue that "regulations often end up inadvertently favoring established big busienss, therefore we should forget the whole thing", it's just to point out that regulation attempting to restrain some activities of profit-seeking institutions end up damaging both justice and economic growth, and then neither justice- nor profit-maximizers win. Part of the problem too is that every regulating body requires experts, who are often drawn from the industry they're regulating (FDA and FAA); not sure where else we'd find them, and that's a problem you pointed to here - but of course there are predictable results. One possibility would be to have each regulation make a prediction about what effect it will have, and then some mechanism feeding back to point to the failings of bad regulators.