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Hidden Costs of Regulation

Mises Daily: Tuesday, September 12, 2000 by

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In many countries interventionism has so undermined the supremacy of the market that it is more advantageous for a businessman to rely upon the aid of those in political office than upon the best satisfaction of the needs of the consumers."

Ludwig von Mises, Human Action p. 310 (Scholar’s Edition)

In a free market where property rights are inviolably secure, it is enough for business people to devote their time and efforts to satisfying the needs of their customers, be they consumers or other merchants. A business that does this well succeeds in making profits and rewarding its owners by increasing the value of the business.

A business that accomplishes this goal benefits not only its owners but also those customers who benefit from its goods and services. Their standard of living is also raised. Consumers get the benefit of goods and services that they would otherwise be unable to attain or, at least, that they would be unable to obtain without greater sacrifice. Clearly, customers engage in trade with a business because they feel, at the moment of the exchange, that they will benefit from the transaction.

Unfortunately, in the real world, property rights are not so secure as many high technology companies are discovering. The so-called New Economy workers have had a well-known reputation for political apathy and an almost defiant disdain for political participation. As Katy Bushkin, a top executive for America Online said in speaking about New Economy entrepreneurs, "They’re not in to partisan politics. It’s old. It’s not relevant."1 However, Microsoft’s experience has forced many companies to take a new look at how they spend their valuable resources. And they are finding out that satisfying customers is not enough.

Representative Ellen Tausher, a Democrat from California summed up Silicon Valley’s view. "Prior to the Microsoft case, there was some sense that those people in Washington aren’t really relevant. Their attitude was: We’re the center of our own universe. They’re annoying and obstructionist…but they’re not really doing anything that affects us. Clearly the apocalyptic moment was the Microsoft case. How many times has Bill Gates lamented that he didn’t pass through Washington more often?"2 Tausher knows of what she speaks. By the time she was 25, she had a seat on the New York Stock Exchange and with her former husband, she made millions in the computer industry.

The issues before Congress now will all have dramatic effects on the fate of high technology companies and the development of technology markets. Will Internet sales be taxed? How will intellectual property be dealt with? There will likely also be legislation regarding privacy and online safety. There is already talk of a digital divide, whereby government bureaucrats are wringing their hands over what to do to ensure that their favored victim groups have a share in the use of technology. There is the matter of immigration and how it affects a perceived need for more workers. Legislation has already passed that will sanction legal transactions made over the internet.

All of these issues will require an expanded government if government is going to resolve them and enforce the decisions made. Patrick Von Bargen, executive director of the National Commission on Entrepreneurship protested that "Entrepreneurial companies live in a world of risk. They don’t need additional risk from a big spending government."3 However, the government shows no signs of getting smaller. Indeed, the pace of expansion has quickened due in no small part to the successes of high technology companies.

Business Week notes that "In 1990, the federal government took in $1 trillion. This year, the take will be $2 trillion. And in 2010, according to official estimates, the hoard could grow to $3 trillion. That means Treasury expects to collect more cash in one year, 2010, than was raised from the first Continental Congress until 1972."4

The Business Week article also drew parallels with the fervor that accompanied the Progressive Era, when politicians with an egalitarian zeal strove to control the perceived "excesses of the great wealth created in the Gilded Age." The Progressive Era resulted in all sorts of limits on capitalism, including labor legislation, trust-busting, and other regulatory restrictions. If the ambitious agendas of the current presidential candidates are any indication, we may bear witness to a surge in government spending and interventionism.

With such important issues at stake, high technology executives are beginning to feel that they had better pay homage to the powers in Washington. America Online, for example, hosted fifty members of Congress and 175 congressional staffers at its Dulles campus last year. More and more companies are creating lobbying groups to influence policy.

All of these efforts divert businesses from doing what they do best. Now, not only do we have enormous resources being wasted by the government itself, we have a renewed and growing lobbying industry that continues to siphon off valuable resources from market-driven ends.

A people secure in their rights, rooted in protections against infringements on their property, ought to be apathetic about their government. As Murray Rothbard noted in his Conceived in Liberty, "What the content of these regulations should be depended on what groups managed to control the state apparatus. Such control is particularly rewarding when much is at stake, and a great deal is at stake when government is "strong" and interventionist. In contrast, when government powers are minimal, the question of who runs the state becomes relatively trivial."5

An interventionist government not only forces a pattern of production different from that which would have emerged in a free-market market, it also creates the need for a parallel bureaucracy to counter and influence that intervention. Businesses become just as interested in satisfying their regulators and lawmakers as they are in satisfying their customers.

Notes:

1. "Don’t Give a Damn About Politcs?" by Eleanor Clifit, Washington Techway, July 24, 2000
2. Ibid.
3. "The Politics of Prosperity" by Lee Walczak, Richard Dunham, and Howard Gleckman, with Rich Miller, Lorraine Woellert, Amy Borrus, Paula Dwyer and Ann Therese Palmer, Business Week, August 7, 2000.
4. Ibid.
5. Conceived in Liberty, Vol. I (Auburn, AL: The Mises Institute, 2000), p. 260.