Subtlety

Most people recognize the subtle differences in a young lady's smile (or at least are aware that there are subtle differences). The astute observer will recognize the differences when she is smiling because she's supposed to, she is being friendly, or she really wants to be asked out. Beyond interpersonal relationships, many people seem to lack a healthy appreciation for the subtleties of many things. As an example, the economic effects of regulation.

The government decides that widgets need to be regulated for consumer safety, so they pass the laws and write up the regulations. The obvious results are that the companies hire a few extra people and absorb some of the cost and pass the rest on to widget consumers in the form of higher prices. But that is not the end of it. The subtleties are where the devil resides.

The extra regulatory cost is relatively more expensive for a small, young, or other marginal company. These marginal companies merge, creating a big company. This new big company is now able to do two things, better afford the existing regulation and afford to hire a lobbyist. Now, what do you think this company will lobby for? (Multiple choice, all that apply)

A. repeal/reduction of the regulations

B. restrict or prevent new or additional regulation

C. international trade protection

D. subsidies

E. New or additional regulation

If your answer includes A or B you must not understand the question. C and D are correct but secondary. E, new and additional regulaton, is the top priority of this company.

What?!? I can hear it from across the Internet. Let me explain. This is where subtlety comes in. We have a marginal company that faces a regulatory burden and needs to make a profit. They have accepted that the "people" want regulation, so they are going to be "reasonable" and "responsible" corporate citizens and help develop regulation. Preferably regulation that costs more to the competition than themselves. Do you see where I am heading? By actively working for regulation they can get good PR while locking out competition. As a bonus, the quality of product is fixed at the level specified by the regulation, and the company has reduced costs associated with legal claims about the safety of their product.

The end result is a huge company that would not be able to exist at all in a free market that is now able to dominate the market because of regulation. This has occured in automobiles, banking, insurance, and aviation amongst others. Big business requires big government to exist.

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Outstanding post, there,

Outstanding post, there, David.

I like the PR reason. I

I like the PR reason. I never thought of that.

Yeah, good stuff Dave.

Yeah, good stuff Dave.

Reminds me of a radio piece

Reminds me of a radio piece I heard in the last few days (on NPR, I think, but I couldn't find it in their archives). It was talking about how Phillip Morris was supporting FDA efforts to regulate tobacco, and trying to figure out why they would be motivated to do so. Competitors saw it as a way for PM to lock in Marlboro as market leader at the expense of newer brands.

Great - The same logic

Great - The same logic applies to a much more threatening situation - exclusive government services like military, public health etc.
A quick read of this article and then a look at privatization of government and you see how Lockheed Martin is in the software and network business. You see why civil engineering corporations buy up small local businesses and create Bechtels, URSs, Halliburtons. And why URS buys EG&G and CSC buys DynCorp.

Privatization of government is a major economic issue since it leads directly to oligarchy linked to oligopoly! Inefficiencies and perversions of public interest abound!! Conflicts of interest are institutionalized!!