Why Businesses Can’t Stand Free Markets
businessweek.com
businessweek.com
When you let special interest groups define the rules, they tend to define them in their own favor. In the modern industrial state, corporations have discovered a very successful tactic of evading conscious interference by proclaiming their desire for "free markets" and then lobbying behind the scenes to tilt markets in their favor.
When people wake up to this reality and smart businesspeople like those on HN stop pretending that a "free market" is some god-given natural state of affairs, then we will be able to level the playing field for small businesses against the corporate interests. Smart regulations are important to avoid abuse of power.
The problem is it also doesn't make a free market *well-defined".
If in a discussion "free market" has a willo-the-wisp quality in which whatever existences and is undesirable "isn't really a free market", then you haven't shown that "free market" is anything but rhetorical device.
That's a popular piece of rhetoric, but I don't buy it. Certainly a market with government handouts or regulations that bias the interests of some players over others is less free than a market without such interference. I think we can say that the transportation market was "more free" after competition killing regulation was removed from the trucking industry under the Carter administration, for example[1]. (People forget about Carter's libertarian streak, but libertarians don't. You can also thank Carter for deregulation of air travel[2] and delicious microbrewed beer[3].)
Rather than lobbying to bias the market in favor of our preferred people, as you suggest we do, it is perfectly possible to lobby in favor of less special-interest rules. In fact there is a significant minority of people in this country who do just that. We call ourselves "libertarians".
[1]http://en.wikipedia.org/wiki/Motor_Carrier_Act_of_1980
[2]http://en.wikipedia.org/wiki/Airline_Deregulation_Act
[3]http://www.theatlanticwire.com/features/view/feature/How-Jim...
Really? What about a market in which a private entity behaves similarly or worse? The British East India company, for example, literally owned a country. With only the actions of a "private" entity, India's market were open primarily to ... British goods. http://en.wikipedia.org/wiki/Company_rule_in_India ("During the period, 1780–1860, India changed from being an exporter of processed goods for which it received payment in bullion, to being an exporter of raw materials and a buyer of manufactured goods." )
What I've said to the libertarians here is "when everything is private, I will invest in the tanks, I think they'll be a profit center..."
We need to wake up and free the market. A lack of regulations (as has been proven) is the only way to avoid abuse of power.
How do you outlaw that? What are you going to do, cloister your Congressperson in their office and forbid them from seeing people? It's actually a big part of their job. Are you going to say that if a Congressperson is considering a certain regulation of a certain industry, under no circumstances should they ever talk to anyone with any connection to that industry? As stupid as law may sometimes be today, that would actually be even stupider.
Yeah, sometimes it does devolve into the suitcase scenario but really that's quite unsubtle.
You don't. We change the societal web of incentives such that the people who become legislators are capable of making the distinction between unethical lobbying and their role as representatives on their own.
The people we're getting right now sometimes seem cognitively unable to draw this distinction at all.
EDIT: And how do we do that, I hear you cry? We'll what we're doing right now is a good start. Capitalists, entrepreneurs and some might say downright greedy people having loud, public conversations questioning and debating the role of private business in government, and vice-versa. If this keeps happening, the meme that perhaps such unrestrained lobbying might be harmful will permeate mainstream culture, and when the politicians of the future are preparing their campaign platforms, personal ethical responsibility in their relationship to industry will be at the top of their minds, because they perceive them to be at the top of the minds of those who will be voting for them. Obviously it is too ambitious to expect politicians to act selflessly. Therefore we must make it in their interests to act ethically.
And run-on-sentences. Those help too.
DHH told me to attempt the impossible if I want to achieve success. I see it as profoundly unimaginative and unambitious to restrict this notion to the fields of business and programming.
You've gotta have a go!
Besides, 'watching closely' is pretty trivial now. The government certainly seems pretty good at doing it to us.
This is why it's relevant when a politician has had an affair; if he is unwilling to uphold the most solemn covenants he makes in his lifetime, to the people to whom is the closest, and upon whom the negative impact of his actions will hit the hardest, why do we have any idea that he will be willing to uphold his covenant to perform in the general interest or uphold the Constitution when his covenant is with an amorphous, anonymous mass of "The People"?
The best solution I can think of is public financing of elections, but I am very pessimistic about such a law getting through Congress, even if the Democrats retake the House in 2012.
¹According to figures gathered by the Campaign Finance Institute, it costs about $1.3M to win a House seat and about $7.5M to win a Senate seat. (http://www.cfinst.org/data/HistoricalStats.aspx)
Seriously, nothing will happen if not even the comparably bright people on this site is able to digest the fact that politics in the US is more complicated (and, indeed more broken) than "democrat good, republican bad". They're pretty much all scum, and the few honest people seem to be pretty well distributed across the parties.
Every politician does whatever they can within the rules (and then some) to get elected, but some want to change the rules because, for example, banning corporate donations would probably hurt Republicans more than Democrats.
But finally, and my most important point: No, Republicans, to the extend they have a common position doesn't want campaign finance reform. But neither does the democrats (to the extend they have a common position). Most significantly, a very prominent Democrat broke his pledge to take public financing in the face of raising heaps of money and outspend his opponent 2:1.
I mean, perfectly honest, Democratic congress or not, is Obama going to get behind serious campaign finance reform?
Seriously, it's part of their platform.
In the same way that companies distort regulations of their industry to thwart competition, politicians will ensure that public campaign financing rules will prevent newcomers (e.g. tea party, green party, etc) from ever getting elected.
Like I said, I don't know if it's true, but I don't really see a mechanism by which single term limits will help the situation. In fact, they may make it even worse by making it hard for politicians to distinguish themselves by a record of actually doing good. Instead, the public will have absolutely nothing to go on besides advertisements, which are paid for by guess who.
For the record, I have heard this said from both sides of the aisle. I'm not standing by its truthfulness because government brokenness is a complex issue, but it certainly seems like a valid explanation to me.
When newbies get elected, they have a tough time navigating the corridors of power. This is where the lobbyists come in: they've seen the system (they probably were a part of it before becoming lobbyists), they know how it works, and they're just too happy to help out. This way their influence grows stronger year by year.
Term limits is not the answer. I think California's open primaries will help in electing moderates, people who are willing to look at all sides of the equation.
Just in case you see this, my idea was to limit ALL contributions to $1 per entity - person, corporation, whatever.
Hmmm... So if a corporation had/forced all employees to offer up their dollar to a specific candidate, looks like you are right - It could/would still be gamed... sigh.
You don't. In short, you de-incentivize lobbying by drastically reducing the size, scope, and budget of the federal government as mandated in the Constitution.
Income taxes were never "banned". Before Pollock v. Farmers' Loan & Trust in 1895, federal income taxes were considered an "indirect" tax constitutionally, and thus only had to meet the requirements of Art. I, Sec. 8, cl. 1, which was that taxes must be uniform geographically. Pollock declared federal income taxes a "direct" tax, which thus had to meet further requirements under Art. I, Sec. 2, cl. 3, which called for the receipts of direct taxes to be apportioned proportionally to the population of each individual state.
The Sixteenth Amendment (ratified 18 years after Pollock) lifted the requirement of proportional distribution; it did not change the constitutionality (or unconstitutionality) of federal income taxes.
One statistic the article states is that some organisation spent about 700,000 dollars in lobbying and 2.5 millions in campaign contributions. I only wonder which was more effective.
Is it bad if I write a letter or talk with my congress critter? How about if I put up a sign?
How about if you and I get together to do so?
Corporations are voluntary aggregations of people.
I think it’s possible to draw logical and constitutional lines between
¶ 100 people writing letters to their Congresscritters advocating for the same policy
¶ a manager of a corporation (with 100 shareholders) writing Congresscritters to advocate for some policy (that not all 100 shareholders think is a good idea)
¶ a corporation hiring a lobbyist to be its permanent advocate in Washington
Actually, those shareholders do think that it's a good idea because they've continued to be shareholders.
> corporation hiring a lobbyist to be its permanent advocate in Washington
That's just like me than me writing a letter every day.
I fundraise for my kid's school. A local bank, ABC Savings, makes a considerable donation. There's no expectation that the school will pass a rule where we only accept students if their parents bank at ABC Savings. There's a difference between accepting campaign fundraising and quid pro quo.
In your own example - it's not like school will not accept somebody if they're not using ABC Savings. But they sure as hell will cater more to those who do, than to those who don't?
The only long term solution to the problem is to improve journalism (which is happening slowly) to encourage a better class of office seekers combined with a reduction in the importance of government in business and daily lives, to make it less worthwhile and less necessary for businesses to influence government.
Now imagine you're a key figure in an industry, such as, say, the internet industry, and you have opinions about things, such as, say, net neutrality. How foolish would it be for you not to attempt to influence the decision makers by providing them with your view of the issue?
This is what lobbying is. It has nothing to do with free speech, and everything to do with information flow. You certainly would never outlaw it.
There are a lot of "grass roots" lobbying going on for nearly free based on emails, web pages, and social media. In fact, it is so effective that many lobbiests have adopted "grass roots" mechanisms to lobby - see "astroturfing" http://en.wikipedia.org/wiki/Astroturfing.
And a letter from that group is probably more representative of the collective opinion of the people working there than (say) a Senator's votes are representative of their state.
A corporation is made up of SHAREHOLDERS, not employees.
Corporations don't make decisions, though. People make decisions. We act as individuals. France doesn't attack Britain. Soldiers in one army attack soldiers in another army. We act as individuals. http://en.wikipedia.org/wiki/Methodological_individualism
I don't agree with everything it said, but The Corporation makes some good points about how corporations as legal entities allow people to abdicate responsibility. Watch it on Youtube here: http://bit.ly/hb0wuL.
Now, imagine that you can't sound the alarm. This is going to put people out of work and ruin your business, but you can't say anything.
That's what it means to prohibit lobbying.
To stop lobbying, you need to stop Congressmen from getting power-drunk and passing random rules and regulations that affect the economy based on something they just read in the New York Times (like the recent debit/credit thing). Companies generally don't want to lobby, they just do it as a defensive measure.
Lobbying itself shouldn't be illegal, it should just be de-incentivized by controlling the federal government's size and scope per the Constitution. This would also fix a lot of the corruption among federal representatives, who all too often are judged for the amount of booty they can bring back to their states.
There's an unfair amount of blame on the corporate end of this conflict, when the fact is that nothing of this could happen without willing politicians.
I think true capitalism can't arise in a vacuum; it needs a regulatory support structure for enforcement.
Who watch the watcher? How those watcher of watchers determine if the watcher in question is doing its job?
This is obviously false, both from a logical and historical view.
A monopoly cannot exist in a free market as no company, no matter how successful, can actually restrict entry into any given market without the government banning entry into that market. This is accomplished though various legal means including licenses, trade barriers, so-called "intellectual property" protections, and other tactics. Without the barriers for entry into any market provided by government, establishment of a monopoly on any desired service would be impossible.
Now, you might cite some historical examples like Standard Oil and the like as examples of why monopoly protections are needed, but this standard example only illustrates my case. The price of a gallon of oil, for example, was around 30 cents in 1870 and fell to around 6 cents at the time of the anti-trust trial. And their market share was continuously dropping despite their supposed monopoly.
Let's take one specific example, though the principle can be applied to most industries: child car seats. Presently, govt regulations require very specific quality and manufacturing standards and thorough testing before a child safety seat can be sold on the market. Without those regulations in place, how man children need to die before third party organizations can disseminate product failure information wide enough that the responsible company suffers the consequences?
A natural monopoly can and ought to be defined as an entity with monopolistic market share achieved WITHOUT government regulation, subsidies, and the like, AND WITHOUT the illegal use of physical violence.
It is unlikely that google would loose such position until there is an advance or breakthrough. Until then, google can do quite a lot and pretty much whatever it likes if there were no laws constraining it.
This is a good rule of thumb to determine whether a market is free. So, for example, in the US, the high tech hardware and software markets are free (prices are continuously dropping) while the higher education market is not (prices go up every year.)
(Politicians were really corrupt back then. For example they would commonly threaten to pass nasty laws to mess up railroads just to get bribed to stop. It's amazing how bad it was, and how far we've come that today's politicians aren't so corrupt like that (partly the change is due to technology making it harder to hide what you do)).
cf. The Value of Nothing by Raj Patel in which he makes the point that we all agree as a society how trade is conducted, and we can agree to do it one way or another way. For example we now agree humans can't be sold and that land can, but at other times the reverse was the case.
Trade does not happen in a social vacuum.
Capitalism: People are free to buy and sell their own property as they see fit. This necessarily implies people have enforced property rights. In other words people with economic freedom are practicing capitalism.
Corporatism: Groups of people organize (into corporations) in order to advance their interests (usually to make a profit). One way to advance their interests is to push for laws and regulations that favor themselves at the expense of others.
So in the United States we have a constitution designed to protect freedom from people who are trying to favor their own interests. Now we're all involved in both sides to some degree or another. I want freedom to do whatever I want. I also want restrictions on your freedom to do whatever you want to do to me. Where do we end up? Well we never end up anywhere, we just keep changing what the limits of our freedoms are. Human nature being what it is, given the opportunity we push for personal benefits at the expense of others freedoms - Corporatism.
I just tried poking around on The Google, and http://www.ronpaul.com/tag/corporatism/ is apparently 500ing right now.
Source: http://www.campaignforliberty.com/article.php?view=806
http://www.mlwerke.de/me/me23/me23_000.htm
http://www.marxists.org/deutsch/archiv/marx-engels/1848/mani...
I disagree, and offer this article as a source of several examples. The corporations currently have far more influence over the actions of the government than the general public, which means that corporations are able to exercise a lot of effective power over the general public. By removing some government power, you lessen the effective power of corporations. If the government is stripped of its power to do things like shutting down small coffin makers or imposing high tariffs on specific markets, corporations lose their ability to influence the government into doing those things.
I defy you to show me any examples other than Microsoft of a corporation gaining so much economic power that, without employing the government, it was able to exercise more power than the government currently enables it to.
Political power and economic "power" aren't the same sort of thing: one is ultimately based on force, and the other on willing trade. A market is only free to the extent that political power allows, and the only entirely free market would be in the absence of political power.
1: http://en.wikipedia.org/wiki/Non-aggression_principle 2: http://en.wikipedia.org/wiki/Non-aggression_principle#Ambigu...
The goal ought to be to diffuse this power amongst as many people as possible. Concentrated power is the thing to fear.
The illness is that some people choose to initiate force against others. Every single human being should refrain from such behavior. All interactions among individuals should be by mutual consent, or not at all.
Unfortunately that simple moral principle has deep implications which most people are not willing to accept. And so the nightmare continues.
Of course, normally it doesn't come to that, but the threat has to be real otherwise those naughty people will just go right on selling coffins. (My goodness, they might even be unsafe.)
Yes, people often seek political power in order to maximize their economic power. And people with economic power can often gain political power. Nevertheless, the two types of power are distinct. Political power is the ability and willingness to initiate force against others. Economic power is the ability to deploy capital in production. Just because one can be used to pursue the other does not make them equivalent.
1) Businesses will act in their economic self-interest to capture regulations/regulators. This is done to leverage the power of the state for themselves.
2) This capture is a bad thing, presumably due to net harm it causes to other business/customers/individuals/freedom.
3) Absent regulation businesses will not be able to (or be less able to) bend the power of the state to their own economic interests and will have to use other tactics.
4) Those other tactics are less harmful (or more beneficial?) than the effects of regulatory capture, to the degree that they overwhelm any good lost from removing regulations.
Does that roughly capture it? If so, is there evidence to support point four somewhere?
edit: And I mean that's not getting into any of the ones that are currently illegal due to regulation. Ever heard of trusts?
Yes, my grandparents had one.
Oh, you were refering to the subject of "anti-trust".
Name three bad monopolies that didn't depend on govt power for their monopoly status.
The question is, is this a problem with "government" or a problem with "bribery".
It depends. Do you think that we should treat orphans who kill their parents different from other orphans?
Standard Oil
How long did the "monopoly" last? Were consumers injured by it?
> Standard Oil
Standard Oil was huge because they were cheaper than the competition. Kind of like how Wal-Mart did it. Is that a bad thing?
But thanks to some really good marketing, people continue to pay a premium for the "real" thing.
And I'm not sure how far your definition of "textbook monopoly" stretches, but the concept of "antitrust" covers not just monopolies, but cartels and cartel-like activity (like secret price-fixing agreements). OPEC is an example of cartel that has been successful in keeping prices artificially high for probably a majority of its existence.
Long distance prices dropped when the long distance monopoly ended, not when AT&T was broken up.
That monopoly was a creature of law.
But it takes a good understanding of the way the market works and the way economics work, and certainly if you just slather regulation all over the system willy-nilly the most likely outcome is regulatory capture. This is what usually happens. Neither the right nor the left is very good at this sort of regulation at all.
It's focused on the pernicious effect of the revolving door between K St. lobbyists and Congressional staffs, and the way private election finance keeps these toxic exchanges alive and dangerous.
Chinese capitalism = American capitalism - Human rights
Indian capitalism = American capitalism + Wage slavery
Society will be shaped in whatever way the powerful wish it to be shaped.
Right now power comes from the ability to control the minds of the masses - to lull them into sleep and avoid their wrath.
No system is ever going to solve this issue. The issue will be solved when enough people decide that they prefer to live in a society with free markets.
Right now the public does not enforce that.
They don't seem to be attached to businesses, since they seem benefit from the things we hear that the businesses hate.
They don't even seem to be ordinary worker, since most workers also work for these same businesses.
Who can answer this for me?
cf. "The Suicidal Impulses of the Business Community":