Dispatches from the Creation Wars

Balkin on Big Business and Regulation

Jack Balkin has an interesting post picking up on David Bernstein’s comments on Samuel Alito and originalism. There are many different issues jumbled together in the post, some of which I don’t agree with, but I want to point out one statement that I think will come as a surprise to many people, especially many on the left. Many on the left believe that libertarianism is favored by big business because it would get rid of government regulation that reduces their profits. But in fact, big business often uses that regulation to its advantage to keep competitors out of the market and thus they have no desire to do away with such regulation. Balkin writes:

Business interests do not want a constitutional revolution in federal state relations. They want a flexible, agile, and supple federal power that will deregulate selectively to allow businesses with the most political clout to do most of what they want, promote their interests with generous (and often unnecessary) tax breaks and subsidies, and employ federal law to preempt state legislation that they believe is unfriendly to them or regulates in conflicting directions.

No doubt most businesses want courts to cut back on environmental and consumer protection, and limit antitrust and labor regulation; but unlike the late 19th century, the most influential business interests in the country want courts to do this with the flexible tools of statutory interpretation and by deferring to administrative agencies run by Republican administrations. The goal most definitely is not to hold vast swaths of federal regulatory law unconstitutional because that would threaten the ability of the Congress and the President to pass national laws (or enact federal administrative regulations) and engage in mercantilist policies that Republican political contributors like.

Ignoring the last sentence, which strikes me as inflated rhetoric, his point is absolutely correct. There are many situations that demonstrate his point perfectly. Big business uses government regulation to its advantage in a myriad of ways, the most obvious of which is to keep their competitors, particularly small startup competitors, out of their markets.I’ll give you a couple of examples.

I have a friend who is a lobbyist for one of the largest trucking companies in the country, and not long ago he was lobbying the state government here in Michigan not to do away with some fairly strict licensing requirements, but to keep them. Why? Because his company already complies with them and has all of the licensing requirements met. But out of state companies, or newer startup companies, have to jump through major hoops to get licensed and it costs them a great deal of money. This increases the cost for them to enter markets that my friend’s company already dominates, and thus reduces both the chance of competition and the ability of a competitor to undercut them in price.

The second example is the oil industry. The Foundation for Taxpayer and Consumer Rights had a fascinating report a couple months ago that included leaked memos from the major oil companies showing that they were using government regulation to prevent the opening of new refineries in order to prop up the price of gasoline. They had lobbied to make sure that smaller refineries were not given an exemption from certain environmental regulations, for instance, and had lobbied to put additional regulations in place for new refineries while their older refineries were grandfathered in.

This is how big business uses government regulation to increase its control of the market and push up their profits. They also do it through direct lobbying for tax breaks, lower user fees, and often direct subsidy. The amount of sheer corporate welfare in the Federal budget is astonishing, amounting to hundreds of billions of dollars. These are nothing less than cash money transfers from primarily middle class taxpayers like you and me to the bank accounts of major corporations. And as Balkin points out, big business isn’t about to give up this cash cow. So while they complain about too much government regulation to the public, they use it very much to their advantage in the political arena. Or as Lewis Lapham noted years ago in his terrific book The Wish For Kings:

The federal treasury at the moment supplies 45 percent of the nation’s income. The politicians dress up the deals in the language of law or policy, but they’re in the business of brokering the tax revenue, and what keeps them in office is not their talent for oratory but their skill at redistributing the national income in a way that rewards their clients, patrons, friends and campaign contributors. They trade in every known commodity – school lunches, tax exemptions, water and mineral rights, aluminum siding, dairy subsidies, pension benefits, highway contracts, prison uniforms – and they work the levers of government like gamblers pulling at slot machines. As with the subsidizing of the farms and the defense industry, so also with paying off the bad debt acquired by the savings and loan associations…

In the late twentieth century, as in the early nineteenth, a clear majority of American businessmen has shown a profound aversion for anything that remotely resembles a free market or a genuine risk. At their annual conventions they sometimes make brave speeches about the joys of “risk taking” and the wonders of “entrepeneurship”, but what they know and trust is the rigged price, the safe monopoly, the sure percentage. By and large, and certainly in its primary and steadier movements, the national economy depends not only on systematic price-fixing and noncompetitive bidding but also on the guarantee of government intervention. The theory of the free market works at the margins of the economy – among cabdrivers and the owners of pizza parlors who made the mistake of borrowing $20,000 instead of $20 million – but the central pillars of the American enterprise rest…firmly on the foundation stones of federal subsidy.

I think many on the left believe that the Republican party wants to tear down the Federal regulatory scheme completely. Thus, all the rhetoric we hear about the “constitution in exile” and returning to Lochner-era judicial decision making. But in reality, little has been done to achieve that because the real money behind politics doesn’t really want that to happen. There are some movement conservatives and many libertarians who want it, but the business interests that underwrite the campaigns know that to actually do that would be to kill off the golden goose. Clarence Thomas is the closest we’re going to get on the court to a real originalist in this regard, and as Balkin points out, if his views had been made clear in advance he would likely have been rejected for the court.

Janice Rogers Brown is the real deal in this regard, even more than Thomas, but she will never get beyond the appeals court. She was a bone thrown to the hardcore intellectuals. But the Republican party is not about to take her position seriously, except as a rhetorical flourish. The structure of Federal regulation works too much to the benefit of the big business interests who are the real power behind the throne (and it goes without saying that the same is true of the Democratic party, who certainly have no desire to put the Federal government back within its constitutional limits).

Comments

  1. #1 raj
    November 8, 2005

    This is pretty much dead on. The most recent example is the 1996 telecommunications act. I’ve argued elsewhere that the entire telecommunications regulatory establishment is a violation of the 1st amendment (“congress shall make no law abridging freedom of speech and of the press”) and since it restricts entry by its licensure requirements, it obviously abridges freedom of speech and of the press. Moreover, the fact that states and localities can and often do require licensing of cable operators provides another barrier to entry that abridge freedom of speech and of the press.

    The licensing requirement of broadcasting spectra and cable operations is analogous to the government’s restriction of (a) how much newsprint is available and (b)the companies to whom it can be sold, in the print media. It really is as simple as that.

  2. #2 spyder
    November 9, 2005

    “Many on the left believe that libertarianism is favored by big business because it would get rid of government regulation that reduces their profits. But in fact, big business often uses that regulation to its advantage to keep competitors out of the market and thus they have no desire to do away with such regulation”

    Thank you. I am one who often conflates these positions, in that there are a number of local/regional libertarians here who seem more than willing to support big business and vice versa. It may just be the way the politics is played out, and not the underlying principles, but i get the sense that you and the other more careful theorists(“hardcore intellectuals”) tend to not dilute principles with expedient political gain. And it may be that i am surrounded by private forest and agriculture lands held by very large business interests and concerns who advocate libertarian views in support of their property rights (deregulate environmental laws), yet use their corporate largesse to lobby congress/federal, state, and regional legislative and executive entities to create and enforce laws that empower them to act solely in their own best interests regardless of the views of the public.

  3. #3 KeithB
    November 9, 2005

    “The licensing requirement of broadcasting spectra and cable operations is analogous to the government’s restriction of (a) how much newsprint is available and (b)the companies to whom it can be sold, in the print media. It really is as simple as that.”

    The problem is that spectrum is a limited commodity/resource and must be regulated to prevent users clashing. There are also international treaties involved. (The ITU).

  4. #4 Ed Brayton
    November 9, 2005

    sypder wrote:

    I am one who often conflates these positions, in that there are a number of local/regional libertarians here who seem more than willing to support big business and vice versa. It may just be the way the politics is played out, and not the underlying principles, but i get the sense that you and the other more careful theorists(“hardcore intellectuals”) tend to not dilute principles with expedient political gain.

    Libertarianism has its share of simplistic partisan thinking as well, of course. I suspect what you’re running into are people who just have a kneejerk reaction to any liberal complaints about business practices. They automatically associate such complaints with socialism or something similar. What they don’t understand is that government is not the only institution that can distort free markets. Adam Smith spent a good deal of time and effort examining the distortion of free markets that can come from big business monopolizing markets, conspiring to keep competitors out of the market, fixing prices, etc. That is just as much a threat as excessive regulation and it certainly can drag down the benefits of free markets.

    What we have now is not free markets but markets that are dominated by those who have the politicians in their back pocket to give them a leg up on the competition and that’s something that libertarians should be quite opposed to and typically are. Libertarians really get very little business support in campaigns. The Cato Institute gets only 6% of its funding from corporate sources.

    And it may be that i am surrounded by private forest and agriculture lands held by very large business interests and concerns who advocate libertarian views in support of their property rights (deregulate environmental laws), yet use their corporate largesse to lobby congress/federal, state, and regional legislative and executive entities to create and enforce laws that empower them to act solely in their own best interests regardless of the views of the public.

    Sure, this is quite common. But their invocations of the virtue of free markets is mostly empty rhetoric. They use it to cover up the fact that they make huge amounts of money from governmental wealth transfers.

The site is currently under maintenance and will be back shortly. New comments have been disabled during this time, please check back soon.