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Saturday, April 24, 2010

Regulations Have Consequences

It is part of the basic theory of government that when the regulators try to regulate the regulated, the regulated will in turn try to control the terms of their regulation by attempting to influence the regulators. In other words, that which government controls, will try to control it. Because regulation is a two way street. By regulating people, countries and industries-- you are entering into a relationship with that which you regulate.

To rule over the unrepresented creates an unstable situation. And so the regulated will either attempt to indirectly or directly influence the regulators, overthrow them or escape their control. This too is an inevitable outgrowth of the basic theory of government, one which liberals tend to deliberately ignore when complaining about corporate lobbying. Corporate lobbying and donations to both parties are a direct product of the growth of government regulation, interference in industries, bailouts, grants and other forms of corporate welfare. The more government interacts positively or negatively with business, the more business lobbyists will try to influence how those interactions go.

There is of course one easy way to end most corporate influence on politics. But it is not one that the very people agitating against corporate money in politics will champion. That is because it requires them to give up power. Corporations are motivated to spend money in the hopes of either earning a profit or avoiding a loss. Spending money on lobbying would dry up if there were no profits or losses to be gained from doing so. But the very politicians who wail about corporate money, still expect those donations to keep coming in. And they continue exercising power over entire industries and fields, which naturally summon the companies dealing in them to try to shape how that power is exercised.

What has the expanding network of government regulations wrought? First, it has created a vast industry of lobbyists from companies who either want to avoid regulation or want to exploit regulation in order to benefit themselves or harm their competitors. Companies who want the government to pass along taxpayer money to them or create monopolies for their benefit. Companies who want government contracts for items that the government doesn't need or doesn't need to buy at that price, but will anyway because companies find it cheaper to donate to congressmen than compete fairly for the contract. All this is the result of a system in which government regulations have made it increasingly entangled with the very businesses that government is regulating.

Secondly, it has convinced many companies that it is simply easier to opt out, and move their manufacturing facilities out of the control. This has been a boon for China, but a disaster for America. The manufacturing sectors of America have become depressed, and perfect fodder for Democratic politicians to bring home the dole by taxing America's remaining businesses. But as Thatcher once reputedly said, "The problem with socialism is that eventually you run out of other people's money." In America, if the process goes on, there will be two types of companies, government subsidized companies and companies that have relocated overseas. And America will finally have Europe's economy with everyone on the dole, including the companies themselves.

As government continues to press companies over overseas revenue, they will find it simpler to relocate their headquarters overseas. Some have already done it. This will deprive the system of another source of taxable revenue, which will only drive them to press down harder on the existing sources. Which will further accelerate the entire process. But the people behind it know exactly what they're doing.

The combination of regulation and taxation makes it gradually too expensive for companies to operate legitimately. That means the only possible way for them to continue operating is to either leave the country, or throw in with the system and get a grant to begin doing something absolutely useless. Under socialism, rent seeking behavior by a company is much safer than making a good product and selling it. And so the successful business strategy now relies on integrating business with government, to produce a socialist state, in which business is not simply regulated by government, but is an actual part of government.

Consider a system in which Cap and Trade can allow speculators hiding behind environmentalist credentials to rob existing companies of billions of dollars, and decimate entire industries-- through government regulation. Under such a system it makes no sense to own a factory. Instead it makes sense to visibly drive a Prius while flying a private jet around the country, talk about the shrinking icebergs while eating imported lobster, and lobbying for wealth redistribution from actual productive companies.

That is the socialist strategy. Not to destroy business. But to destroy legitimate and productive business. Business that does not rely on government for its moneymaking strategy. And in the end all that remains is a whitemarket economy that is tightly regulated, low priced, inaccessible and virtually useless for obtaining many basic products and services-- and a blackmarket economy that is unregulated, overpriced and where anything can be found. That doesn't just apply to the kind of health care system that the left would like to impose on America. That is the kind of system they want to impose comprehensively in every area of life, minus of course the blackmarket, which is of course an inevitable outgrowth of overregulation.

Regulation is inimical to economic diversity. The more you regulate a field, the less authentic economic diversity it can have, because economic diversity is a function of economic creativity and mobility. Regulation leads to central planning in the long run, and to a freeze on economic creativity in the short run. The more regulation you have, the less economic diversity remains and the economic ecosystem rewards only business strategies that are symbiotic or parasitic on government. Regulation steadily makes the government the key, and then eventually the only player in the marketplace, as it comes to control everything from manufacturing to the sale of the products all down the line.

The growing influence of corporate money on politics is not a sign of capitalism, but of socialism. Capitalism does not require buying politicians. Socialism does. And the influence of corporate money on politics parallels exactly the influence that politicians have on business. It is a two way street, and those that the regulators regulate will attempt to influence the regulators. The more this happens, the more it's a sign that there are too many regulations, not too few.

Regulators like to believe that they can absolutely control human behavior. But human beings respond in unexpected ways. And one of those ways is that they will strive to escape or seek to control, those who would control them. Democracy is the outgrowth of the practical recognition that the rule of the people is also the best way to maintain a civil and working society. It avoids the power struggle between the government and the governed. By trying to rule without representation, the power struggle resumes. Because regulations have consequences. And the first consequence of regulation is that those you rule over, will try to rule over you.

2 comments:

Morry Rotenberg said...

"Democracy is the outgrowth of the practical recognition that the rule of the people is also the best way to maintain a civil and working society." Another outstanding bit of logic on your part Sultan. But you know that old saying about democracy, one man one vote one time? Wait till the illegal Hispanics start voting en mass in our gerymandered congressional districts.
Let's hope that democracy can save us in November 2010 from the regulators that democracy put in place in November of 2006 and 2008.

Tom said...

As government continues to press companies over overseas revenue, they will find it simpler to relocate their headquarters overseas. Some have already done it.

I'm seriously considering moving my small company to an Asian country where I do most of my business (I actually export US manufactured products). The country is offering incentives for investor visas. By investing $50K I pay virtually no tax on my income for several years and I'll be eligible for a government backed line of credit equal to twice the amount of my investment, that I can use to expand business and hire employees.

In the US all I get is taxed more and more while being denied credit by banks even though we have good cash-flow and good credit. Here we can't get the capital needed to expand our operations. It's really sad to think that I may have to move to another country to grow my business. I've run it from the US for nearly 20 years now, but it is looking more and more like I have no choice.

Steve Wynn announced over the weekend that he is seriously considering moving the HQ of Wynn Resorts to Macao. Asia is doing more to attract business than any where else in the world right now.

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