When Capitalists Conspire With Government

By Timothy P. Carney

The Restaurant Association of Metropolitan Washington is pushing for strict regulations on food trucks.

Big business and its associations often support regulation to stunt competition.

The most dangerous enemies of capitalism today are capitalists. This is becoming clearer every day to people committed to free markets.

The conservative and libertarian grassroots came to deeply distrust big business after the Wall Street bailouts and Obama's stimulus and health care bills, both of which had big-business backing. Tea Party ire focused on subsidy-suckling businesses as much as at big-spending politicians.

Beltway conservatives have also joined in the fight against corporatism. Last spring, the Club for Growth, FreedomWorks and the lobbying arm of the Heritage Foundation all lined up against the Chamber of Commerce and pressed GOP congressmen to vote to kill the Export-Import Bank, which nonetheless was reauthorized by an overwhelming margin.

Republican politicians, despite being lobbied hard by their big-business donors and K Street advisers, are nevertheless moving slowly away from corporate welfare and toward free-market populism. House Budget Committee Chairman Paul Ryan wrote an op-ed in Forbes in 2009 titled "Down with Big Business" (a headline he borrowed from a 1979 Wall Street Journal op-ed).

And now academia's free-market players are getting in on the game, beginning to rebuild the intellectual infrastructure to argue against corporatism. George Mason University's Mercatus Center this week is kicking off a series of papers on cronyism and business-government collusion.

"The Pathology of Privilege: The Economic Consequences of Government Favoritism," written by Mercatus senior research fellow Matt Mitchell, is the first installment.

"Privilege" is good word to encompass all the unfair advantages government can give favored businesses. Mitchell's paper, drawing on the scholarly work of Milton Friedman, James Buchanan, Gordon Tullock, Joseph Schumpeter, Mancur Olson, George Stigler, Luigi Zingales and many others, outlines various types of privilege and lays out the evidence that these policies hurt the economy while benefiting the privileged.

Politically favored businesses of course benefit from direct subsidies (think agribusiness) and government loan guarantees (think Solyndra and Boeing), but Mitchell makes the important point that regulation itself creates a privileged class.

Regulation often acts directly or indirectly as a barrier to entry. The conservative and libertarian media have documented this anecdotally -- Philip Morris supported and is benefiting from Obama's tobacco regulation, for instance, because the rules allow it to lock in its dominant market share. Mitchell assembles scholarly work broadly showing regulation's anti-competitive and pro-big-business effects.

These critiques of regulation come not only from Milton Friedman, but also from the Left. For instance, liberal activists Ralph Nader and Mark Green wrote in the Yale Law Journal that the "regulatory system undermines competition and entrenches monopoly at the public's expense." Mitchell in this section also cites Alan Krueger, who now heads Obama's Council of Economic Advisers.

In the Obama era, as Democrats and the media try to paint deregulation as some sort of dangerous sop to big business, Mitchell's notion of "regulatory privilege" is a crucial tool for dismantling the old narrative that regulation protects the public. Mitchell uses a colorful image to make his case: Bruce Yandle's "bootleggers and Baptists."

Illegal booze smugglers, Yandle wrote, "support Sunday closing laws that shut down all the local bars and liquor stores. Baptists support the same laws and lobby vigorously for them. Both parties gain. ..."

Locally, for instance, the Restaurant Association of Metropolitan Washington is lobbying for strict rules on food truck parking, in the name of "the needs of the public" for sidewalk space and parking places. Of course, brick-and-mortar restaurants benefit from any regulation that makes life harder for their rolling competitors who can't afford to lease a downtown storefront.

The research Mitchell brings together helps show why government-granted privilege is so important to big business and so costly to the rest of society. In one key finding, he highlights research indicating that free markets, with fewer barriers to entry and fewer bailouts to prop up failed giants, make it harder for dominant businesses to maintain dominance.

Mitchell cites a 2008 study in the Journal of Financial Economics that found "big business turnover ... correlates with smaller government, common law, less bank-dependence, stronger shareholder rights, and greater openness [to trade]."

Further, in Mitchell's words, "those nations with more turnover among their top firms tended to experience faster per capita economic growth, greater productivity growth, and faster capital growth."

Big business wants safety, but big-business safety hurts the rest of the economy.

Disdain for bailouts and corporate welfare has resided primarily in the populist corners of the Left and Right. But the scholarly case against systemic privilege is strong and growing, too. The subsidy sucklers, bailout barons and regulatory freeloaders may soon face a challenge on a broad political front.

Timothy P.Carney, The Examiner's senior political columnist, can be contacted at tcarney@washingtonexaminer.com. His column appears Monday and Thursday, and his stories and blog posts appear on washingtonexaminer.com.
 

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