Why Businesses Actually Want Regulation

By | Boston Daily |

I know this sounds a bit weird, but I think the business sector actually desires regulation and corruption. Which, of course, means that almost everything Mitt Romney says is wrong.

In Massachusetts, state law says that you cannot get treatment for glaucoma from an optometrist. You have to go to an ophthalmologist. But in all the other 49 states, you can use an optometrist if you want.

In Massachusetts, the law says that every truck that delivers wine to your door has to have a special permit. That means companies like FedEx and UPS would have to have a separate permit for every truck in their fleet if they wanted to deliver wine. Which is why they don’t deliver wine in Massachusetts.

The Massachusetts state legislature is now considering an act that would make Massachusetts one of the relatively few states in the country to license and regulate solar energy installers. It’s supported by the Boston Area Solar Energy Association.

Now, none of these laws may be bad. I’ve never met an ophthalmologist I didn’t like. I’m happy to help support the store where I buy wine, and I am a big fan of solar energy. But these examples give lie to the claim that what businesses really want is less regulation. Because businesses desire it and use highly paid lobbyists and generous campaign donations to get it all the time.

Businesses must constantly push to find an edge for themselves over the competition. Sometimes they do this by pushing for regulations that constrain access to markets, expand their patent rights, protect profits, cut the competition, and burden their brethren. When those GOP talking heads go on Fox News and tell you about how the market hates regulation, they really aren’t telling you the truth. What they mean is that businesses hate any regulation that costs them anything and protects you. But if it costs you and protects them, well, that’s fine. The real problem is you don’t have a lobbyist — and they do.

Take ophthalmologists, for instance. They might not be the kind of group you might think of as being in the center of a political food fight. But in the 2010 election cycle, the American Academy of Ophthalmology spent $1.9 million nationally in PAC money. It looks like a lot of it was spent on their feud with optometrists. Ophthalmologists and optometrists are like the Hatfields and McCoys. Ophthalmologists, apparently, believe that every dollar that an optometrist makes treating glaucoma is a dollar that comes out of an ophthalmologist’s pocket.

Thanks to effective lobbying and well-placed political donations, ophthalmologists have prevailed here in Massachusetts and have kept laws and regulations in place that cut down on the competition from optometrists. This is what business of every variety likes to do whenever they can.

Wine is another example. Massachusetts is one of the few states where you can’t get a special bottle of wine delivered to your house by FedEx or UPS. Some may try to tell you that this is because people are looking out for your well-being. But unless you were just born yesterday, you know it’s actually because Massachusetts’ liquor wholesalers are trying to protect their profit margins and burden their competition with regulations. They don’t want competition from out-of-state wineries. As the Globe recently pointed out, since prohibition:

… liquor laws in Massachusetts have tilted in favor of the only group with the money and organization to shape them — the wholesalers who distribute alcohol to bars, restaurants, and package stores.

And so it has always been. Even at the very beginning of the country, business interests pushed for laws and regulations that helped one business or geographic sector over another. The very first federal expenditure for “internal improvements” came in 1789 when the first Congress spent federal money to nationalize 12 existing lighthouses and pay for their upkeep. Six of them were in Massachusetts.

A little later, Congress got around to the first federally financed road. And of course there was a huge fight over just where it would go — just like the kind of fights we have today. The National Road, as it was known back then, was a huge money maker for some, but not for most. Just the way things are today.

So all that righteous hooey you hear about doing away with regulation, is just that. Hooey. If the government eliminated every regulation about everything, everywhere tomorrow, the day after tomorrow, there would be a line of business lobbyists waiting outside the offices of politicians, hoping to propose one little new regulation because it would give them an advantage. Like regulating Solar Panel installers will benefit established participants and make it harder for new ones to compete. Which is not necessarily bad. We get, I suppose, all the corruption we really desire.

  • http://www.cityeconomist.com John Tepper Marlin

    No question, industry regulation can be a form of protection. Both Ralph Nader’s Raiders and Milton Friedman’s Marketeers in the 1970s showed that regulatory agencies tend to get captured by the businesses they regulate. It’s the warden-prisoner relationship where wardens sooner or later come to realize that if they are nice to those they supervise, good things can happen. Regulatory agencies in Washington were protecting their industries. The ICC protected the railroads. Nader usually wanted tougher regulation and Friedman wanted none at all. The Carter Administration deregulated the airlines.

    The alternatives to regulation are prohibition, taxation (which requires some regulation) or free markets. Sometimes the only likely alternative to regulation is prohibition. What we got when Prohibition was repealed was regulation and high taxation of alcohol in most states. We don’t prohibit cigarettes but tax them heavily. Prohibition is like an infinitely high tax. States have discovered the joys of taxing (or operating!) gambling operations. Next? Medical marijuana?

  • Howard

    On the off chance that Mr. Nolan is being merely obtuse, rather than willfully so, perhaps a more nuanced perspective can help once he has cleaned up the remnants of his poor, destroyed straw man.

    Simply put, what is good for “business” is not the same as what is good for any individual incumbent business in a particular area and Nolan conflates the two in order to advance this argument. An incumbent business in any given area obviously seeks regulations that stifle competition – this is good for that single business, but it is bad overall for business and, consequently, our economy. We have less money in our pockets because of the ophthalmology racket, etc.

    To the extent that any candidate is looking to break down regulatory barriers rather than erect many more of them, that will likely be bad for a variety of businesses – but it will in most cases be good for the business sector as a whole. We should not confuse the interests of individual businesses with the interest of the business sector.

    • Barry Nolan

      The point dear Howard – is that businesses actually crave regulations – businesses are not a monolithic block that seeking a free market – as they are usually painted by the GOP.

      And it is a fiction to posit that there is a free market solution for dealing with the un-captured costs of things like pollution. Big dirty power plant operators don’t want any regulations on their noxious emissions because it would decrease their profits – but that means the real cost of doing business that way is laid on the backs of the folks who live in the downstream plume – they pay for that business practice in their higher health costs – they suffer from higher rates of asthma and other pulmonary diseases so the power plant owners can make more money. And there is no effective market pressure for them to change their practices – especially if the people effected are not customers – or are in another state. Another example – New England witnessed decreases in the recreational values of lakes that were down plume from midwest power plants – and were hit by acid rain before sulfur dioxide was regulated.

      Good regulation is not counter to a free market. Good regulation recognizes that there are un-captured costs associated with some business practices and in a fair and just world – those costs need to be dealt with.

      Bad regulation – the kind that the GOP tends to support – typically insures that the cost of regulation is bourn only by the consumer – and the powerless.

      • Howard

        Barry,

        Don’t you think it’s silly to claim that this is somehow a partisan issue where Republicans in particular are bad? From where I sit, bad regulation that supports all kinds of rent seeking behavior is a bipartisan tradition. Technocratic behavior in which some businesses are favored with desirable regulation is one thing that both parties love… they just don’t always agree on which businesses should receive the benefit of the largesse (though sometimes they do agree – which yields monstrosities like our farm bills). I wish the Republican party were more principled about supporting a positive business environment rather than supporting particular businesses… if only so that we could have free market oriented party in this country. Both parties pay lip service to the glories of the free market while they piss all over it – why do you only call out one of them? Surely you don’t really think that all of the regulation favored by Democrats is grand stuff, right? Corn subsidies; trade barriers; rent control; NIMBYism in places like cape cod where rich liberals live; I could go on, but nobody is pure here… or do you think all of those things are about protecting the innocent from pollution like in your idealized examples that actually bear no resemblance to the policy sausage coming out of our legislative processes?

        Find me a politician in either party who truly supports only pigouvian taxing on externalities like the ones you describe, while favoring the free market everywhere else, and you will have done two things. First, you will get me to support that person. Second, you will have found a creature more rare than the offspring of a love connection between the Loch Ness monster and the Yeti.

  • Barry Nolan

    Dear Howard,
    I agree with you wholeheartedly that both parties have engaged in some awful regulatory disasters – and agree that the corn policy is one of them.

    However, only one party runs on a general principle that “regulation is bad” – and that is the Republican party. Regulation is bad is quite different than regulation must be fair – and needed.

    As for other examples of regulation that “protects the innocent” – regulations that improve food safety – they help not just the people who might die from tainted food – they help the food producers who take food safety seriously. Remember the bad spinach scare? All the good spinach growers suffered badly because someone didn’t take proper precautions. Don’t you want to know that the doctor that operates on your child is properly licensed? That the public building you are in has adequate fire exits? Yeah – all those consumers who die in fires or from food poisoning if there were no regs would theoretically be able to go to other providers in the future. And cold comfort it would be.

    Regards,
    Barry Nolan

    • Howard

      Barry,

      I must have missed the Romney speech in which he suggested that we should not have any required credentials for surgeons… this is not surprising as I am pretty busy and don’t tend to follow every utterance of those in the public sphere – I would most certainly appreciate a link to the place where he went on record opposing same. Perhaps I misunderstand and you are referring to other prominent Republicans – that’s cool… a link to such a statement from any of them would be of great interest to me.

      It’s not really quite fair to point to some of the least controversial regulations and use those to build a case against those with a more deregulatory bent – this is precisely the type of straw man thinking that characterized your initial column as well. If you want to defend the broad regulatory power that the state has arrogated to itself, how about making the public interest case for the examples that you cite yourself in your column? Are we in Massachusetts better off for our special-interest-benefiting regulations on alcohol and eye treatment?

      This is not, incidentally, a right wing talking point… the incumbent businesses are typically richer and more powerful than their would-be competitors – these kinds of regulations are nearly always about making the rich richer at the expense of the rest of us. And yet Democrats – the purported party of equality – are all about it. At least some of the Republicans can be bothered to pay lip service to the burden that needless regulation puts on us – and as your own column’s examples show, we clearly have plenty regulation that isn’t for our best interests as a polity… it ain’t all fire exits and doctor licensing.

      Arguing, as you do, that we should have regulation is as facile as arguing that we should not. The difference is that I don’t recall hearing the pro-anarchy position from any of the prominent Republicans – though as noted in my first paragraph above, I would be grateful for a pointer there since I could well have missed it.

      Best,
      Howard

  • http://virginiadivorceattorney.com Charlie Hofheimer

    Barry-very insightful and a great history lesson. The Republican related Super Pac’s aren’t spending their millions for good goverment-It’s all about self interest ,commerce, and favorable regulation or non-regulation.

  • Barry

    Dear Howard,

    You are confusing yourself with Mitt Romney. You asked in your earlier post about other examples of regulations that are about “protecting the innocent from pollution like in your idealized examples” – and so I gave you some. There are lots of them. So there you go – per your request.

    But the big point you continue to miss – is that Republicans are running on a blanket “anti-regulatory” platform. Not on a platform that says “let’s be more robust in getting rid of regulations that are really not beneficial overall.”

    Mr. Romney’s web site makes this broad claim: “Regulations function as a hidden tax on Americans” (Just Google: Mitt Romney Regulation)

    Mitt Romney – and Republicans in general are messaging that ALL REGULATION IS BAD. In their blind zeal to heat up their base – they attack the very concept of regulation – not just bad regulations like the dumb one Obama overturned about cleaning up spilled milk. They attack all “new regulation”, indeed, the very concept of regulation. And I think we have established in this discussion that some regulations – doctor licensing – are quite good.

    But leading Republicans – like Mitt and Newt Gingrich just don’t see it that way. In Newt’s Mops for Tots program – he was even against regulations relating to child labor. And most Republicans are now against cap and trade – after having supported it for years – even though the vast vast majority of scientists tell us that it would be hugely beneficial overall.

    If you can get the Republicans to be specific about particularly bad regulations that should be modified or overturned – I promise to say hooray and lay off.

    Regards,
    Barry Nolan

    • Howard

      Barry,

      I can’t believe that I actually went and looked at an official Romney campaign document, but since you threw down the gauntlet…

      http://www.mittromney.com/sites/default/files/shared/Regulatory.pdf

      It is an odd document for a blanket opposed-to-all-regulations campaign to product. Here, e.g., is a choice quote from that document:

      “Some of the concepts in Dodd-Frank have a place. Greater transparency for
      inter-bank relationships, enhanced capital requirements, and provisions to address new forms of complex financial transactions are all necessary elements of effective financial reform. But these concepts must be translated into law in a way that creates a simple, predictable, and efficient regulatory system appropriate for our dynamic economy.”

      That doesn’t sound like someone who wants to eliminate all regulation. The campaign is pretty explicit there that some regulation has its place – I don’t know how it could be more explicit on that point. The rest of the document also talks about a mix of repealing + amending + restructuring (i.e., it isn’t always and everywhere a repeal message).

      Now, maybe you would object that this is what those dry boring documents talk about while the stump speeches are far less nuanced on the matter of regulation. Since stump speeches aren’t noted for a surfeit of nuance, no matter the candidate, I suppose that’s probably true but not exactly differentiating from the other party.

      Indeed, the existence of some regulations that are on balance good and non-controversial says nothing about whether we are currently over or under regulated on a macro level. And, incidentally the “on balance” part isn’t asked nearly often enough – Romney is assuredly correct about the hidden tax thing (and for fun, he quotes the current administration’s materials to hammer that point home). Arguing for less regulation / streamlined regulation is not in any way tantamount to arguing for no regulation or having a “REGULATION IS BAD” platform.

      Best,
      Howard

  • http://aao.org American Academy of Ophthalmology

    Barry Nolan is correct that the American Academy of Ophthalmology, representing 32,000 member eye medical doctors and surgeons worldwide, had a federal PAC of $1.9 million. He is incorrect; however, in his allegation that “it was spent on their feud with optometrists”. As Mr. Nolan should know, federal PAC spending is limited to federal races, while scope of practice is almost exclusively a state issue. The Academy directs PAC money to national issues such as veterans’ eye care, patient safety, Medicare, healthcare reform, and the like, in order to achieve the best quality eye care possible in the United States. On many of these national issues, ophthalmology and optometry work side-by-side in their advocacy initiatives.