Saturday, February 8, 2014

Government is not your enemy, business is not your friend

Sometimes it seems that for every problem we face in the modern world the conservative community has the same solution, eliminate government regulation.  If only we would free businesses (the job creators) to innovate in a free and open market all our problems would be solved.

Now I’m not going to claim that there aren’t way too many silly, destructive, or overly complex government regulations[1] (although it seems like many of them were created by the same job creators to protect some favorite benefit or government perk). And it’s perfectly rational that the business community is in favor of less restrictive regulation. But I don’t buy the “government is evil / business is good conclusion”, which in my opinion requires a stunning ignorance (or dismissal) of history, as well as current events.

Business needs government

First of all, business can’t exist without the legal infrastructure, including contract law and corporate protections, provided by government regulation. And government plays a role in building or enabling natural monopolies including transportation and communications infrastructure that businesses rely on.

But the larger issue is that the natural role of business is to maximize returns for shareholders, and history has shown repeatedly that without regulation they will do so with no regard for the overall well being of society. Although disappointing, this is also perfectly rational behavior. In fact it’s an illustration of a well know moral dilemma, the tragedy of the commons[2], where rational behavior by individuals, including corporations, can be detrimental to society.

Examples are so common it seems unnecessary to point them out, but here are a few…

Working conditions

Henry Ford believed that paying his workers enough to become customers was good for his bottom line, but that type of thinking is rare in today’s modern corporations where decisions are dictated by the quarterly earnings cycle.

Examples of business taking advantage of workers are plentiful. In the US the most extreme case is probably the justification of slavery by the cotton, tobacco, rice, and sugar cane industries among others. As usual the argument was made that these industries couldn't survive without slavery and the economy of the South would collapse.[3]

Short of slavery, long work weeks, work days and child labor were common in the US until the emergence of strong unions that gave worker a voice that could match the power of employers[4]. Unsafe working conditions were common until regulation sparked by industrial accidents such as the Triangle Shirtwaist Fire.

And it’s not that these are less common now because of enlightened business practices. We’ve just exported these conditions to third world countries where there are no protections[5].

Conservative philosophy argues that, in a free market, workers are free to vote with their feet and that wages and working conditions will reach a natural equilibrium. But competition forces businesses to match wages and related costs to stay viable, resulting in a downward spiral of wages, benefits and working conditions.


Businesses have a long history of polluting the environment, (LA Smog, Cuyahoga River Fire), a perfect example of the tragedy of the commons. In their defense businesses claim that they can’t survive if required to eliminate pollution, but unless their product reflects the true cost of production the result is effectively a subsidy by the community at large. Only government has the power to prevent businesses from passing costs of production on to the community.

The conservative response is that reducing pollution is too expensive and will damage our economy, but the cost is real. The question is, should it be ignored, born by government, or incorporated in the cost of the product.

Building standards

According to Wikipedia one of the earliest records of building codes are found in the Code of Hammurabi dating from around 1772 BCE [5]. Today’s building standards are fairly strong in the US, but examples of lax enforcement or the lack of standards elsewhere are easy to come by[6]. Once again the free market can’t provide protection from unsafe construction.

Adulterated of Unsafe Food

Food safety regulations started in the US following the Swill Milk scandals in the 1800’s in the US. Think this can’t happen today? In the US most of our food comes from large corporations that won’t risk the damage that would result from contaminated food. This is an example of effective protection in an open market. What gives consumers power is the high frequency of purchase from an identifiable source, but we still require someone with the ability and incentive to do periodic tests.

Role of Government

From the examples above it seems clear to me that government has a role to play by representing society as a whole and preventing the natural inclination of businesses to profit at the expense of the community.

This isn't to say that there aren't a lot of examples excessive or unnecessary regulations. In fact that is where I think we need to focus the debate. Rather than mindlessly repeating the mantra of government is bad and business is good let’s have a civil discussion about specific regulations that should be eliminated, changed, or added and judge them on their merits.

No comments:

Post a Comment