Profit Through Regulation

Three items from different levels of economic activity caught my eye at the same time this morning.  All three illustrate an important principle behind the fusion of government and business: there will always be profit.  The power of regulatory coercion changes who receives profits, rather than eliminating them.

The first story is a small one, related by Hunter Baker at the Acton Institute’s PowerBlog.  Baker wanted to replace a scratched eyeglass lens without changing his prescription, but was told it would be against state law to do so, without seeing an optometrist.  As Baker puts it, through state regulations “the optometrists have made themselves necessary gatekeepers to me resolving my personal vision issues, even though I already have a prescription that works well.”

Second is a post from John Carney at CNBC’s NetNet blog, in which he discusses the concept of “regulatory capture” – the way Big Business uses Big Government to impose regulations that work to its advantage, while harming smaller competitors.  Carney’s point is that Big Business doesn’t simply “take control” of such regulations after they are passed in a nominal spirit of public good.  They support them from the inception, because they know the regulatory state is a mighty oak in whose upper branches they comfortably rest, while smaller businesses are strangled by the roots.  To cite the specific example which engaged Carney’s attention, minimum-wages laws don’t hurt mega-corporations like Wal-Mart all that much, compared to small-business competitors.   The big corporations usually pay better than minimum wage anyway, and their size makes them better able to absorb mandated increases in the cost of labor.

Finally, there are the stalled free-trade agreements with Colombia and Panama, discussed in a Washington Post editorial today.  Various reasons have been given by the Administration for dragging its heels on these agreements, even though they would greatly benefit American producers, and the Administration’s monetary policy is built around weakening the dollar to encourage exports.  In the case of Colombia, the Post points out that any free trade deal would be “lopsided” in our favor, because Columbia already benefits from duty-free access to our markets, thanks to laws intended to help nations at war with drug cartels.  The stated reasons for delaying these free-trade agreements are petty or nonsensical.  The real reason is that American labor unions oppose them.  Much like the Mexican Truck Standoff, it’s a case of government power deployed to protect union interests, at the expense of everyone else.

In areas ranging from a scratched eyeglass to billion-dollar trade deals, the principle is the same: government regulation creates profit opportunities, which can be “captured,” rather than earned.  The optometrists in Hunter Baker’s state benefit from laws forcing everyone with a minor lens problem to march through their doors.  Social policies like minimum-wage laws make a powerful club to beat down small competitors.  Government tariffs can provide an advantage to unions, when their demands would normally make them uncompetitive.

This is not to say that all regulation is corrupt, or unnecessary.  It is an argument for dramatically minimizing such regulations, and understanding there will always be an appetite for more, from those who see an opportunity for profit in their shadows.  The image of government as the selfless expression of our popular will is as childish as the notion of Big Business as a champion of unfettered free-market competition.

The seemingly counter-intuitive political leanings of certain corporate tycoons are not surprising, once you understand how they find advantage in rationing opportunity for others.  Social justice crusaders can be very useful to high-powered businessmen, provided they’re angry about someone else’s profits.  At a certain level, Big Government and Big Business become the same thing: a mighty vessel with a rusted hull, crewed by people headed in the same direction for different reasons, her wheel held by captains who are only intermittently concerned with the smaller ships that break against her prow.