Still here?
Good. Let’s consider some of the
rare valid “pro” arguments. None are
without substantial caveats and exceptions.
First, we’ll examine “social value” regulation, and then we’ll look into
the “need for rules”.
It is often argued that in the absence of workplace safety
regulations, no workplace would be safe.
(This is most frequently argued by smug proponents of organized labor
who wish to claim victory for this, and virtually all other modes of progress,
on behalf of labor unions.) This claim
ignores the fact that most companies—those that have to compete for market
share, at any rate—try to deliver a product that will be purchased by
consumers. This in turn places
strictures on the quality of their output.
And this in turn requires that they employ skilled, talented, and loyal
labor forces. This last requirement is
what forces companies to compete for labor, and this competition for labor
often takes the form of competition on the basis of wages, benefits, workplace
amenities, and safety. As long as
companies are forced by circumstance to offer better accommodations than their
competitors, all companies will try to do just that. When, instead, standards for benefits,
amenities and safety are installed by an external regulatory force, and
therefore competition no longer plays a role, companies are no longer subject
to quality standards, but to regulatory guidelines. The onus shifts from attracting quality labor
to avoiding litigation. And I submit to
you (not for the first time, nor the last) that litigation is simply never as
effective an inhibitor of corporate behavior as is the market itself. No company fears fines and court fees nearly
as much as it fears permanent loss of market share (which is something that only We the Consumer can inflict). This alone implies that ethics can be a perfectly
capable lever for regulating corporate behavior, so long as ethics can be
exercised by the consumers.
But so long as the government maintains a monopoly on
regulatory activity, the consumer is not compelled to exercise ethics in his
purchases. We have been trained to
accept the government’s ruling on all corporate matters. Some of us do engage in protests and
boycotts, and some of us do maintain loyalty to brands whose owners impress us
with their behavior. But not enough of
us do so to actually wield anywhere near the force the government does. This is increasingly a Green age, and
increasingly an age of ethical consumerism, so I have no doubt we can
eventually cross a tipping point with regard to consumer watchdoggery. But the government will have to relinquish
its stranglehold on regulatory power before we can get there. And the pundits drinking the Paul Krugmanade
will have to reverse their positions and encourage their progressive readers to
take a more active role in regulating the market.
When that day arrives, potential employees will seek
employers on the basis of their benefits offerings and safety record; no one
will assume that any employer is as good as another in that regard. When a multinational oil company spills
millions of gallons of crude into the Gulf of Mexico, it will be punished by
its customers, and its competitors will take note of the results. People who wish to purchase raw milk will be
able to risk their own health voluntarily; no one will be left to assume that
all milk is of the same quality simply because the government has assured us of
this for our entire lives up to that point.
Thousands of people sickened every year by salmonella, E. coli, listeria and botulism can already
attest to the fact that these assurances are hollow. What regulations provide in this context is a comforting illusion of safety, one that encourages consumers to forego the kinds of vigilance that would actually protect their health.
The flip side of this coin is the argument advanced by
pro-regulation people to the effect that a lack of regulation actually causes
or contributes to health hazards and disasters.
My immediate response is to ask which regulation prevented the E. coli deaths in Europe during the
spring and summer of 2011? Which
regulation prevented people from being sickened by eating raw cookie dough in
2009? Which regulation prevented salmonella outbreaks that same
year? Which regulation prevented the listeria deaths from eating tainted
cantaloupe in the fall of 2011? And
which regulation prevented the BP oil spill in the Gulf? The answer, of course, is NONE. The petroleum industry is widely pointed to
as an example of a sector in need of more regulation, but the fact remains that
petrochemical production is already at or near the top of the list of
heavily-regulated activities. BP and its
partners on the Deepwater Horizon platform have been cited (as of September
2011) with no fewer than thirteen different regulation violations. Let me state that again: thirteen
existing regulations were violated in the days prior to the disaster. The problem isn’t a lack of regulation; it’s the ineffectiveness
of regulation. And the standard liberal
response is to shout “But that just means we need to add more regulation!” This demonstrates another facet of the
regulatory disconnect between liberals and conservatives, which is also
prominently played out in the context of gun control. Liberals often agitate for more (and more
restrictive) laws regarding the ownership and use of firearms; conservatives
often retort that what is needed is to simply better enforce the laws that
already exist. So it is with
business. The problem, of course, is
that enforcement on the scale that would potentially eradicate all misbehavior
is prohibitively expensive and difficult.
Contrast our state of affairs with that in one of the world’s most
heavily-regulated (and –planned) economies, China. The penalty for violating regulations is,
often enough, death. And yet those
draconian measures haven’t been enough to prevent the tainted-melamine scandal
of recent years, or the fact that China is currently the world’s worst polluter,
in terms both of petrochemical spills and air quality. It is clear that in order to compel people to
adhere to any legal standard that would prevent these problems, a fate equal to
or worse than death must be on the table.
Yet few of us would reasonably entertain the notion of becoming as
tyrannized as the Chinese in order to clean up our act. It is repugnant to the idea of liberty, which
(I’ve said many times, and will continue to say) is the predominant fiber in
our social fabric. If we’re not willing
to go that far in law enforcement to get the results we seek, then we must be
willing to look into alternatives to laws.
So the way I see it, environmental and social-value
regulation only has value if it is effective and cost-effective. And neither criterion appears to be the case
in general. Failing those, all we’re
left with is the feel-good nature of such regulation, the perception that it’s
“doing something;” in other words, the intention, rather than the results. And as Milton Friedman puts it:
"I challenge you to name a single social measure which
has accomplished its intended objectives rather than the opposite, which has
not done more harm than good."
And:
"If I want to do good with other people’s money I’d
first have to take it away from them. That means that the welfare state
philosophy of doing good with other people’s money, at its very bottom, is a
philosophy of violence and coercion. It’s against freedom, because I have
to use force to get the money."
And:
"A society that puts equality—in the sense of equality
of outcome—ahead of freedom will end up with neither equality or freedom.
The use of force to achieve equality will destroy freedom. On the other
hand, a society that puts freedom first will, as a happy by-product, end up
with both greater freedom and greater equality. Freedom means diversity
but also mobility. It preserves the opportunity for today's less well off
to become tomorrow's rich, and in the process, enables almost everyone, from
top to bottom, to enjoy a richer and fuller life."
I have elsewhere argued that the steps we take now to
address a given social ill have a tendency to become more or less permanently
enshrined in law, and therefore serve as obstacles to later generations who
perceive these same problems as either nonexistent or more amenable to solution
by alternative methods. We in fact deny
liberty to our progeny by demanding that they accept our solutions, which may
have long fallen out of relevance by the time the next generation achieves
majority. (This is a greater disservice
when enacted at a one-size-fits-all federal level than when we allow the states
to choose their own approaches; we in fact paint our posterity into a corner
that might not otherwise even exist by the time they come to primacy.) We do them a greater service by acknowledging
that society and its environment evolve, and that the solutions of today may
seem quaint, outdated, or simply incorrect in light of later developments. In the worst case, such solutions have become
entrenched in governance by having been immortalized as Constitutional
amendments; at best, they become parts of national law, where they remain hotly
contested by the states and various constituencies for generations, continuing
the political feedback loops that contribute to the election of those
politicians willing to exploit those issues for personal gain. However any of us feels about the
desirability of equality of outcome, the fact remains: every pro-equality regulation requires
enforcement, and enforcement necessarily diminishes liberty. Liberty and equality are not necessarily
antagonistic quantities, but they very frequently are, and any society that
values liberty over all else should always err, legislatively speaking, in
favor of liberty…even if it means foregoing one or another “guarantee” of
equality. This conundrum arises in part
because equality of outcome is neither guaranteed Constitutionally nor by
society (society being essentially a meritocracy): liberty is a right, enshrined in the Constitution,
but economic equality is a privilege, which society simply cannot be coerced
into granting on demand. In this light,
progressive measures intended to enforce equality or protect consumers from
their own mistakes can be seen not only as guaranteed failures, but expensive,
oppressive intrusions into the operation of human nature itself.
One conservative friend of mine who is into macroeconomics
doesn’t decry regulation in general, as he sees it as providing “the rules of
the game.” That’s as may be, but I tend
to regard “rules” as superior when they have evolved in place over long spans
of time, in response to environmental pressures. Rules that are crafted and grafted tend not
to be as impartial as those applied by the environment itself. A natural analogue to this is biological
evolution. Nature applies the rules
whereby this occurs, but those rules themselves evolved over long spans of time
as the nature of life itself changed (most notably, during the Cambrian
Explosion). Prior to the macroscopic
fossils of the Ediacaran fauna, all life is presumed to have been microscopic
(and therefore for the most part unicellular).
Unicellular life isn’t subject to the same kind of selective filtering
that multicellular life is, because it doesn’t rely on sexual
reproduction. A cell that can create
progeny by simply splitting in two at any time is a cell for which death has
little meaning. As long as it can
continue to divide into daughter cells, the same genes continue to exist and
operate in the ecosystem. This reduces
the degree of penalty that can be applied for maladaptiveness. Such a cell might fail to thrive, and so be
overwhelmed in numbers by its superior neighbors, but if it is never quite
wiped out, those neighbors never quite gain evolutionary supremacy. Once organisms became too complex to
reproduce by fission, however, sexual organs (and therefore some kind of
maturation process) came into play, and this subjected those organisms to
natural selection proper. Now, there is
an interval between the initialization of the organism and the onset of its
ability to reproduce; this interval is the time during which natural selection
filters out the poorly-adapted. And now
the organism, once dead, ceases to play any role in evolution, because it has
no identical progeny and so its unique combination of genes no longer
exists. Poorly-adapted gene sets are
selected, once and for all, for removal.
Only under these circumstances does the kind of diversification
typifying the Cambrian Explosion become possible. Death, unpleasant as it is, is an absolute
requirement of this kind of evolution.
The rules have changed, but not so profoundly that unicellular life
forms cannot continue to participate; the system still permits diversity, but
simply offers more substantial rewards to those who buy into the new
rules. Still more recently, Man has
attempted to circumvent the rules of natural selection by imposing his will on
the situation. Rather than allowing
Nature to decide who is most “fit,” we employ our own values: those with blonde hair and blue eyes and a
perfect Nordic profile, say, or those who are most subservient to the current
desired political order. This is not
impartial. It is in fact eugenics. And it doesn’t result in any actual improvement
in fitness to the environment, only in compliance to our arbitrary demands for
what “fitness” should entail. The Master
Race might look pretty on posters, but there is absolutely no reason to suspect
that it would be better able to adapt, to survive calamities that other
ethnicities couldn’t; and the evidence is that the Holocaust required the Nazi
death machine to deliberately wipe out “unfavored” races. Competition didn’t decide the matter; tyranny
did. As in the economy, when government
gets involved, so with society. The
coercive power of government is superior, at least in the short term, to the
strictures placed on competition by the environment. But that doesn’t mean that in the long run
they will actually result in any improvement to the system. (Nor do we have to accept death or its
analogue, total bankruptcy, as the end of the game: in a free market economy, no player is ever
removed from the game permanently as long as he is willing to pick himself up
and get back into it. Unlike the Game of
Life, failure doesn’t result in permanent removal from the system; but it
ought, in most cases, to provide substantial object lessons in what not to do
on the next attempt.)
This evolution of the rules is part and parcel of the
arguments made by Lionel Robbins and Burton Folsom: the market arose in self-organizational
fashion, like life itself. The rules are
built-in to the environment, and firms that better compete are generally
better-adapted to that environment. When
we alter the environment by imposing rules of our own devising on it, we are
bending the definition of “fitness” to suit our whims, and often unfairly
rewarding some firms whose strength isn’t in competition (and in the efficiency
and ethic implied by competition), but in their ability to play along with the
public’s (or the government’s) demands.
Over time, this can result in a concentration of companies which aren’t
really “fit” at all—which lack an ability to compete on their own—but which are
seen as “good” or “necessary” and are therefore maintained at public
expense. When an economic downturn
arrives, these firms are the most likely to collapse, dumping many unemployed
people back into the workforce…or, alternately, the most likely to be bailed
out, again at considerable public expense.
Competition is the only force known to consistently improve and maintain
fitness to the environment, and so competition is the only factor we should be
promoting, if we want the economy to remain robust and relatively stable. By altering the rules, we deprioritize
competition and prioritize values. When
competition ceases to be the predominant force driving fitness, diversity
begins to fall. This is the set of
processes Robbins identified as “cartelization,” which we’ve already discussed
to some extent, and which culminates in the development of monopolies…the very
opposite of diversity.
To put it into more concrete terms, every regulation imposes some kind of cost of compliance. Some firms will be able to absorb these costs
better than others. In particular, very
large firms, which can exploit economies of scale, are largely unaffected by
these costs, but smaller firms are often put in the position of having to shed
workers or go out of business. The
upshot is that every regulation poses some kind of barrier to entry or to
participation in the market, and firms vary in their ability to compensate for
these barriers. Thus the market is
tilted, usually in favor of larger firms.
This is of course exactly what happened to tire manufacturers under the
NRA during the Great Depression. As
smaller firms are kicked out of the market, the market’s overall diversity is
reduced. On the one hand, this promotes
monopoly growth; on the other, it reduces the market’s natural resilience to
shocks. This of course assumes that all players are ethical. Costs for compliance also promote the perverse incentive of encouraging some firms to shirk those costs by violating regulations. Over time, this improves their profitability, to the detriment of those which comply. Congratulations, regulators: you've just handed a competitive advantage to the bad guys.
Robbins generally regards the Great Depression as being the
result of chaos in the global market (during what Daniel Yergin argues, in Commanding Heights, was the first era of
globalization, the first period when economies were so interlinked that
downturns were synchronized around the globe).
Robbins argues that the stresses imposed by industrialization, the
interlinking of economies, and the increasing burden of regulation were the
real causes of the misery that provoked World War I and led to the even greater
misery during and following that conflict.
These same stresses, plus the additional stresses of war reparations and
international disunity, destabilized the market so that any substantial shock
could send it tumbling.
As an influence on subsequent developments, these changes have a double significance. In the first place, they were discontinuous. They therefore involved vast destruction of capital. Secondly, they were restrictive of free economic activity. They therefore involved a reduction in the productivity of the factors of production. For four years, the capital resources of the belligerent countries of the world were devoted to providing offerings to Mars, which either perished in the moment of their production or remained as useless as the pyramids of the Pharaohs, once the occasion for the sacrifice had ceased. The disruption of the world market, consequent on the war and on the peace settlement, meant a restriction of the area within which the division of labour had scope. It meant therefore a limitation of the increase of wealth to which division of labour gives rise.
Concurrently with these structural dislocations, there came a further series of changes no less important in the causation of post-war difficulties. At the same time as the using up of capital and the lowering of productivity were producing conditions demanding readjustment on a scale hitherto unknown in economic history, the economic system was losing its capacity for adaptation. The successful prosecution of war involved, as we have seen, a large and discontinuous alteration of the "set" of the apparatus of production. This alteration was carried through. But the measures which were necessary to bring it about—the centralisation of control of industrial operations—were such as permanently to impair its capacity for further change. The grouping of industrial concerns into great combinations, the authoritarian fixing of wages and prices, the imposition of the habits of collective bargaining, were no doubt measures which would be justified by appeal to the necessities of war. But they carried with them a weakening of the permanent flexibility of the system, whose effects it is difficult to over-estimate. This was a dish of eggs not easy to unscramble.
Here, as with other contrasts between pre-war and post-war conditions, it is important not to exaggerate differences. It is not contended that the pre-war system was entirely flexible, or that the post-war system has shown itself to be incapable of some adaptation. This would be untrue. All that is argued is that the changes introduced by way of groupings which made for cartellisation on the one hand and a greatly increased rigidity of the labour market on the other, were such as to produce an important and far-reaching impairment of what degree of flexibility there was. In the light of well-known facts regarding the rigidity of wages and the prices of cartellised products in the post-war period, this does not seem to be a contention which is open to serious question.
Beyond all this came the break-up of international monetary unity. For forty years before the war, the financial systems of the leading countries of the world had been linked together by the international Gold Standard. For a century, the Gold Standard had been virtually effective. Trade between different national areas took place on the basis of rates of exchange which fluctuated only between very narrow limits. Capital moved from one part of the world to another, if not with the same ease with which it moved within national areas, at least with much the same effects as regards the volume of credit available. The prices of internationally traded commodities moved together in all the important centres. The price and cost structures of the different financial areas maintained a relationship which was seldom seriously out of equilibrium. The war put an end to all this. Within a few days of the outbreak of hostilities, in each of the belligerent financial centres, measures had been taken which amounted to an actual, if not to a legally acknowledged, abandonment of the Gold Standard. Of the chief financial centres, the United States was the only one to remain on gold. The others not only suspended the rights of effective convertibility; they each, in greater or lesser degree, resorted to the device of inflation as a means of financing the war. The results were as might have been expected. The gold supplies of the world tended more and more to be concentrated in the vaults of the Federal Reserve Banks. Prices rose in the inflating countries in various degrees, according to the measure of the inflation. In the markets for foreign exchange the conditions of supply and demand reflected the internal depreciation. It was the first phase of a period of international disequilibrium from which we have not yet emerged.
Robbins here makes two simultaneous points: that regulation distorts the market, and
therefore the business cycle; and that regulation promotes the building of
monopolies and trusts. This is a similar
argument to that raised by anarcho-capitalist economist Murray Rothbard, and
forms a central plank in Folsom’s book on the New Deal. It appears to be rather difficult for many
progressives to internalize this principle; they are generally biased in the
direction of viewing monopoly as the result of unbridled competition.
To put it another way, consider what another (much more
liberal) friend of mine argued about regulation, in the context of an ecology
class. He noted that when graphing the
population of deer on an island, from generation to generation, the magnitude
oscillated from a fairly unpredictable minimum to a fairly unpredictable
maximum over the course of several years.
(This is an example of a stochastic cycle, for those paying
attention. And it’s not unrealistic,
especially in alpine or arctic climates where diversity is reduced as compared
to temperate and tropical zones; many prey species, such as the lemming and the
snowshoe hare, have population numbers that zigzag wildly over the course of
several years. If you’re recognizing
this as a natural analogue to the instability in the market arising from reduced
diversity, kudos.) He, like many others
in his ecology class (presumably all similarly liberal) regarded this behavior
as a pathology, rather than the norm.
(Consider for a moment whether you consider the business cycle to be a
pathology or a norm….does this perception have anything to do with your
ideology?) It was only when a new term
was introduced to the math—the number of predators also living on the
island—that the population stabilized from year to year. Predation pressure (as argued by Robert
Ardrey, among many others) appears to be a necessary element for stability in a
system. My friend internalized this as
meaning that external regulation must be applied to the system to stabilize
it. (Liberals, what do you think?)
My response: wolves are part of the system, not an
external force. Yes, they regulate
the population, but they do so as elements of the environment—as consumers and
competitors—not as ostensibly-uninterested parties—bureaucrats—operating
outside of it. In fact, wolves evolved,
just like the deer, in response to the same environmental pressures (and
indeed, in response to the evolution of the deer itself). Wolf and deer have coevolved, and therefore
their interplay as we see it today is the result of a longstanding relationship
between the two populations. At no point
were they simply introduced to each other, in their modern forms, in situ. And this is part and parcel of my arguments vis-à-vis civilization entire: solutions that have evolved in place, over
long spans of time, are better able to take into account all factors and forces
than are solutions that we craft via pure reason. This is an aspect of what I term the “eyes /
boots on the ground” problem. The market
has more eyes than the government does, and it has more boots on the ground
than the government’s regulatory agencies do.
Those eyes and boots are intrinsic to the system and participate within
it, which is what grants them their superior observational and motivational
power. And this observation is
consistent with the maxim that diversity is key to robustness. Regulators that are part of the system and
participate within it comprise part of its diversity, so it’s little wonder
that they tend to have a stabilizing effect.
Regulators operating outside of the system are not subject to the system’s
feedback loops; they are not penalized for improper action, nor rewarded for
proper action. There is nothing, in
short, to regulate them. Alan Moore famously asked, in his
trend-setting graphic novel, “Who watches the Watchmen?” Of course, there is and was no answer...this being the ultimate theme of the story.
So consider, in a natural context, what happens when Man
attempts to “regulate” the environment by imposing his own will on it. One way this was done in the past was by
eliminating predator populations. Wolves
have been wiped out over much of North America.
Has this improved the deer population?
Perhaps, if absolute numbers are your yardstick. If the health and fitness of the population
is your measure, though, it’s clear that deer populations are actually in
decline. This is why forest services are
encouraging hunters to work aggressively to thin the herd. By eliminating the natural predators, we have
forced ourselves to assume that role, presumably in perpetuity. (Now consider how long-lasting some of the
Depression-era regulations have proven to be.
They’ve outlasted all of the security-oriented regulations that
accompanied World War II itself. Modern
progressives chafe under the restrictions imposed by the Patriot Act, blithely
ignoring the more permanent, and more severe, civil liberties restrictions
imposed by economic regulation. Security
regulation tends to be repealed once the threat has passed, economic
regulation, unfortunately, appears to last forever. Again Friedman offers a ready aphorism: “Nothing is so permanent as a temporary
government program.")
A similar argument can be made in an agricultural
context. Throughout much of the
developing world (including the past of our own nation), land was cleared for
farming by burning existing forest. This
necessarily entails a dramatic reduction in diversity. Where there were once dozens of species of
trees and shrubs, there is now grass and weeds.
All of the animals that relied on the existing cover have fled. The carrying capacity of the land is now
sharply reduced, at least from the standpoint of Nature. From a human standpoint, it has increased,
since more people can be fed on a field full of grain than from a forest full
of leaves and berries. But this
“increase” is illusory, since only one kind of population can be reasonably
sustained on it; virtually the entirety of the natural population, which once
subsisted on those leaves and berries, is now excluded from participation. Further, now Man has the obligation to water,
fertilize and monitor the field for as long as it remains in existence. Now he must assume all of the regulatory
responsibility that was once held by the environment itself. There is not enough interplay of producer and
consumer, of predator and prey, to adequately recycle biomass and energy. There no longer exists the infrastructure for
distributing moisture and nutrients. And
scavengers and weeds must be rigorously fended off. If you’ve ever been a gardener, or spoken to
one, you know that approximately 80% of all time spent gardening is spent
eradicating invasive plants and driving off or eradicating invasive
animals. The environment continually
attempts to encroach; the field never stops trying to revert to forest. Regulating that patch of ground becomes a
permanent and expensive effort, one that Nature previously managed with
ease. Moreover, in the absence of full
biological diversity, the field is never as robust as the preceding forest was;
it will recover more slowly from shocks such as fire and drought, and sometimes
a single pest infestation is enough to wipe the whole thing out.
Robustness, then, is in nature to some degree proportional
to diversity; the system deals better with adversity when there are more niches
offering shelter, and more phenotypes offering more potential solutions to
unexpected problems. And external
regulation, while presenting us with a no doubt prettier and less scary
environment to work in, requires constant vigilance, expense, and a paradoxical
permanent reduction in diversity. It in
effect makes its own job that much harder, merely by existing. (In the context of complexity, as well as in
electronics, this is a known consequence of “positive feedback.”) If equilibrium in nature is a randomly-moving
target, then equilibrium under external regulation is a target that constantly
recedes from the regulator.
We are taught to be deer, not wolves. We are trained by our politicians and the
media to regard “corporate behemoths” as inherently bad and scary. We demand regulation to limit their size and
power. It rarely occurs to us to realize
that regulation is what gives them their size and power. But a reading of Folsom and Robbins should
prompt us to examine the histories of some of the companies. And a pattern clearly emerges: with very few exceptions, no monopoly ever
arose in the United States economy without some degree of state patronage. Whether in the form of subsidies, grants, or
exclusive licenses, the government has promoted cartelization for well over 100
years. The so-called “Robber Barons” were
in fact creations of our government. I
can name several massive companies still thriving today—IBM, AT&T,
Comcast—and in every case, despite the recency of “antitrust” litigation and
FCC involvement in their affairs, I can find decades of subsidization that went
in to creating the very state of affairs that the government later felt
compelled to dispel. None of the most notorious monopolies arose
in vacuo; they were all rewarded by the government with regulation, charters,
or subsidies promoting substantial growth, and many were later punished for
that very growth.
Among the most recent, most high-profile examples is the
United States Postal Service. Subsidized
and granted a virtual monopoly on letter-carrying, it has been allowed to
flourish at public expense for decades despite the poor quality of its
service. In recent years, it has begun
paring back service by removing streetcorner mailboxes in many cities and
abandoning Saturday mail delivery, while at the same time frequently hiking
postage rates. Now it is facing the
threat of total bankruptcy within just a few years. To be fair, the degree of subsidization has
fallen off dramatically since the 1980s, and much of its revenue problem is due
to the new predominance of digital communications, which have outcompeted paper
mail. But this is really just another
aspect of the same problem we’ve been discussing: inflexibility and inability to compete. As in nature, overspecialization has a cost
to long-term survivability. Other
carriers, such as DHL and Federal Express, have engaged in non-letter delivery,
and as such have not fallen prey to this drop in revenue. One way to look at this is to consider the
situation in which none of these carriers has any paper mail at all to
deliver. The competitor carriers have
already adapted to this situation, but the USPS will fail utterly when email
has completely eradicated snail mail (unless sales of postage stamp
paraphernalia to numismatists turns out to be enough to keep a skeleton
operation going). Now consider how many
employees will be dumped onto the workforce if the USPS closes shop. Hundreds of thousands of people will find
themselves jobless. Many of these
employees can expect to be absorbed by competitors, which will necessarily have
to expand to occupy the niches vacated by the USPS. But a substantial portion of those employees
will prove to be of low quality, having been trained by subsidization and
public-sector unions to just get by with a very low level of service (as
anybody who has visited a Post Office in the past decade can attest), or
otherwise having never advanced their skills beyond their unskilled entry into
that workforce. And while it’s by no
means clear that such a complete liquidation will occur any time in the next
couple of years, there were already 3,700 individual Post Offices on the
chopping block as of September 2011.
It can be seen, then, that subsidy and government patronage
do not do the employees of such firms any favors. Competition is, always and everywhere, the
primary force driving improvement and efficiency. In the absence of competition, firms simply
cannot progress and keep up with change, and over the long term, cannot even be
counted on to provide job security. But
this phenomenon isn’t restricted to quasi-governmental agencies, as we’ll see
next.
Even in the absence of “natural monopoly” concerns, such as
letter delivery, government stewardship can clearly promote some players over
others. Since the days of Teddy
Roosevelt’s trust-busting activity, the government has kept a close watch on
mergers and acquisitions, essentially dictating the terms under which companies
can take over competitors. Courts,
judges, and legal fees are always involved, with the result that the legal
profession—always closely associated with the lawmaking profession—is always a
beneficiary of such activity. We as
consumers and voters are led to believe that such activity is impartial, that
it always reflects legal and moral expediency rather than the attitudes and
desires of those making the decisions.
(Elsewhere, relying on my former college poli-sci text, The Supreme Court and the Attitudinal Model
by Jeffrey Segal and Harold Spaeth, I have shown that legal and Constitutional
considerations always take a back seat to the attitudes of the judges hearing
the case. The infamous Roe v. Wade decision, for example, is
not only unconstitutional on its face, but based on a legal precedent which is
itself unconstitutional, Griswold vs.
Connecticut. The only way to justify
such a double shirking of Constitutional duty is via the liberal attitudes of
the justices in question. And such
attitudinal decisionmaking, as shown by Segal and Spaeth, characterizes the
majority of Supreme Court cases, and therefore presumably a substantial number
of lower court cases as well.)
A fine example of recent government monopoly-building can be
seen in the 2011 Comcast
merger. A regulatory controversy was
involved, pitting members of the FCC against other members, and sparking
similar argument in the Department of Justice.
Comcast was attempting to acquire NBC Studios, a move which would grant
it a phenomenal amount of control over media outlets and entertainment
titles. In January of this year, the FCC
and the DoJ both granted assent for the acquisition. FCC Commissioner Meredith Atwell Baker was
the deciding force, successfully convincing the other councillors to approve
the merger. Then, once the deal was
secured, she stepped down from the FCC, accepting Comcast’s invitation to join
the executive staff as Senior Vice President of Government Affairs. (Press releases were firm on the point that
she had recused herself from all votes after April of 2011, but there is no
doubt that her influence with the other voters helped carry the decision, which
was announced, as if made unilaterally, by FCC Chairman Julius
Genachowski.) This phenomenon,
“regulatory capture,” is very common in all sectors of our economy, and is one
highly-visible aspect of the relationship between regulator and regulatee. And by the same token that the legal
profession ultimately benefits from all legislation, this is the mechanism
whereby government regulators rejoin the private sector to enjoy the fruits of
their labors. In the case of Comcast, a
vast number of Internet services, the entirety of the NBC television catalog,
and many editorial / opinion outlets came under the control of that executive
staff, thereby undermining not only the anti-trust imperative of the FCC and
DoJ, but also the stated anti-media-monopoly goals of their leader, President
Barack Obama. It pretty much goes
without saying that the CEO of Comcast, Brian Roberts, was ecstatic about the
decision and showered praise upon Obama and the various regulatory agencies
under the aegis of the Executive Branch.
In recent years, similar drama has played out in the context of
regulating energy production, nuclear facilities, water quality and consumer
goods. All regulation put forth in all
of these contexts should therefore be treated with the same suspicion, but for
the most part, those who approve of regulation approve of those doing the
regulating.
The Internet and television are inescapable aspects of
modern life, meaning these kinds of regulations impact virtually everybody
living today. In times past, such
regulations tended to impact a smaller initial population, albeit one that grew
over time as the regulated industries became more significant. Prior to the advent of modern technology,
industrialization had much the same impact on the masses: slow at first, then building toward
incredible, unforeseen consequences. The
history of industrialization in the United States, for instance, is essentially
the history of steamboat travel in the United States. Great Britain had made the initial forays
into industrialization somewhat in advance of the US, around the turn of the 19th
century, spurred by improvements in steam technology and materials—primarily
steel—and also by the competitive demands of operating an ocean-spanning empire.
The US, however, had Eli Whitney, an inventor and evangelist of the
manufacturing principle of “interchangeable parts.” His most significant invention (from a market
standpoint) was the cotton gin. It
helped speed on industrialization in the United States, but it had steep costs
associated with it. In particular, the
slavery system in the South had been proving economically unsustainable, and
could conceivably have been abandoned without the violent, socially- and
economically-destructive necessity of cultural division, civil war, and
reconstruction, had not the cotton gin arrived on the scene and enhanced
slavery’s utility and sustainability.
There were lots of other factors involved as well: although electrical telegraphy had been
invented in Europe, in a series of refinements of concept, the first practical,
long-range telegraph was produced in 1837 in the United States, by Samuel
Morse. A similar trend of improvement
applied generally throughout the technological realms. Cultural preadaptations, in the form of
pioneerism, individualism and entrepreneurship, promoted an inventive spirit
that paved the way for revolutions in communications and transportation. By way of exploiting and expanding on
technologies that had first benefited Britain, the States were able to quickly
catch up, while overcoming much greater problems of scale (such as geographic
spread and population distribution).
However, due to a reliance on water power, factories remained
concentrated on rivers for quite some time, and the northern states were far
quicker to become industrialized than the agrarian south. Shortly before the Civil War, substantial
petroleum reserves were found in the southeastern states; the first Oil Boom
took place in 1860, and resulted in an increased use of novel fuels such as
kerosene and gasoline. These in turn
fueled industrialization, by way of providing effective, long-lasting
illumination and motive force. The Civil
War itself forced technological innovation, such as ironclad battleships, field
medicine and advances in weaponry. But
it was Reconstruction that posed the economic and social demands compelling
full integration of what were then three disparate economic systems: the industrial northeast, the agrarian south,
and the wild west, wherein mining, hunting / trapping and real estate were the
most important sectors. (Interestingly,
the western territories, lacking much state apparatus, operated under
conditions of near-anarchy; and because their primary output was wealth in the
form of currency, as had been the case in the Latin colonies to the south, an
altogether more cutthroat competitive environment existed there.)
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