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Big Government is a Check on Big Business
by Julian Adorney
A myth runs through most of America today, and it goes like
this: big business hates government and yearns for an unregulated
market. But the reality is the opposite: big government can be
highly profitable for big business.
Many regulations restrict competition that would otherwise
challenge existing firms. At the same time, government institutions
such as the Export-Import Bank-many created during the New
Deal-funnel money to the largest corporations.
When government regulates X industry, it imposes high costs that
hurt smaller firms and reduce competition. Imagine that the
Department of Energy imposes a new rule that dishwashers must be
more energy-efficient. Coming up with designs, retrofitting
factories to produce these energy-efficient models, and navigating
the forms and licenses around this rule might cost a
dishwasher-producing firm thousands of dollars. An industry giant,
with more revenue and sizeable profit margins, can absorb this
cost. A small dishwasher factory that's only a year or two old,
with little revenue and less profit, cannot. The latter would have
to shut down. That means less competition for the industry giant,
enabling it to grow even bigger and seize even more market
Barriers to entry, such as expensive licenses, also cripple
startups and reduce competition. The Progressive New
Republic speaks favorably of how Dwolla, an Iowa-based
start-up that processes payments and competes with credit card
agencies, had to pay $200,000 for a license to operate.
Rather than hire employees or build a better product to compete
with its entrenched competition, Dwolla was forced to spend its
first $200,000 on a permission slip. Dwolla could afford it; but
how many less-well-funded competitors were forced from the market?
How many were deterred from even starting a payment-processing
business by this 6-figure barrier to entry?
For big businesses, which often sacrifice agility for size,
smaller competitors are a major threat. By limiting smaller
competition, government helps the industry giants at the expense of
everyone else. Barriers to entry can kill the next innovative
firm before it can become a threat to its giant competition. And,
when this happens, we don't even know it: the
killed-before-it-can-live company is a classic example of the
"unseen" costs of regulation.
While regulations minimize competition, government entities
subsidize big business. The Export-Import Bank, established in 1934
as part of the New Deal, exists to subsidize exports by US-based
firms. The primary beneficiaries: large corporations. From
2009 to 2014, for instance, the Ex-Im Bank financed over
one-quarter of Boeing's planes. Farm bills, a key element of the
New Deal that still exist today, subsidize huge farms at the
expense of smaller ones. The program uses a variety of
methods, from crop insurance to direct payments, to subsidize
farmers. The program is ostensibly designed to protect small
farmers. But 75 percent of total subsidies-$126 billion from 2004
to 2013-go to the biggest 10 percent of farming companies. The
program taxes consumers to funnel money to large farms.
Nor are these programs unique. National Journalism Center
graduate Tim Carney argues that, "The history of big business is
one of cooperation with big government." In the time of Teddy
Roosevelt, big meat packers lobbied for federal meat
inspection, knowing that the costs around compliance would crush
their smaller competitors. New Deal legislation was only passed
with help from the national Chamber of Commerce and the American
Bankers Association. The Marshall Plan, which subsidized the sale
of billions of dollars of goods to Europe, was implemented by a
committee of businessmen. President Johnson created the
Transportation Department in 1966, overcoming resistance from
shipping interests by agreeing to exempt them from the new rules.
Costly regulations for thee, but not for me.
If Progressives want to see what free enterprise looks like,
they need only look at the Internet. For the past twenty years,
it's been largely unregulated. The result? Start-ups erupt
and die every year. New competitors like Facebook bring down
existing giants like MySpace, and are in turn challenged by a
wealth of social media competitors. Yahoo! was the internet search
king until two college kids founded Google. Google has been
recently accused of monopoly status, but competitors like
DuckDuckGo spring up every day.
Let's imagine if the Internet-a playground of creative
destruction-had been as subject to big government as brick and
mortar businesses. Yahoo! would have been subsidized.
Facebook would have had to pay six figures to get a licensing fee,
crushing college kid Zuckerberg before he got started and
preserving MySpace's market dominance. Businesses that
learned to play the lobbying game would have been allowed to write
regulations to crush their competitors.
For those who doubt, the proof of business' collusion with big
government is in the pudding. In 2014, a surprising number of
libertarian-leaning men and women are in Congress. How has
big business responded? K Street has spent millions of dollars
working to replace laissez-faire advocates with those who are
establishment-friendly. Sadly cronyist businesses are fighting to
keep free market advocates out of power.
A final note: I have criticized Progressives here, but the
institution of big government, which enables businesses to hire
lobbyists to write regulations or give themselves a subsidy, is the
primary problem. The bigger government grows, the more powerful a
tool it becomes for business prone to use it for private advantage.
That's not capitalism, it's what one economist properly labeled
Julian Adorney is an economic
historian, entrepreneur, and fiction writer.