Organized Crime

The Dow Jones Industrial Average would be several thousand points higher than it is were it not for government regulation that causes businesses to divert immeasurable time and resources to pandering to government regulators rather than pursuing profits by creating new products, improving existing products and services, and cutting costs and prices. Since expected future profitability is the major ingredient in stock pricing, regulation destroys stock values.

Government regulation has transformed American corporations from entrepreneurial enterprises to sluggish bureaucratic behemoths. As Ludwig von Mises wrote in Liberalism:

The bureaucratization of privately owned enterprises that we see going on about us everywhere today is purely the result of interventionism, which forces them to take into account factors that, if they were free to determine their policies for themselves, would be far from playing any role whatsoever in the conduct of their business. When a concern must pay heed to the political prejudices and sensibilities of all kinds in order to avoid being continually harassed by various organs of the state, it soon finds that it is no longer in a position to base its calculations on the solid ground of profit and loss.

Mises wrote that passage in 1962 when government was miniscule compared to today’s omnipotent, Leviathan state. With their blizzard of regulations the courts and regulatory agencies have eviscerated three of the most important ingredients of capitalism: private property, freedom of contract, and freedom of association. Genuinely private property rights barely exist in the business world any more thanks to regulatory controls that affect every business in America.

The volume of government regulation of business is mind numbing. Each year the Competitive Enterprise Institute in Washington, D.C. publishes Ten Thousand Commandments (edited by Clyde Wayne Crews, Jr.), an accounting of the scope of federal regulation. The 2011 edition of the publication showed that the monetary cost to businesses of complying with federal regulations was estimated at $1.752 trillion, an amount equivalent to 50 percent of the entire federal budget for that year. This amount exceeds all corporate pre-tax profits and is nearly double the amount of income tax revenue collected in that year. There are more than 80,000 pages of small-print regulations listed in The Federal Register, with no fewer than 58 federal regulatory agencies working diligently to add thousands more each year. Thousands of additional pages of regulations are enforced by state and local governments.

Obviously, American corporations must spend inordinate amounts of time, in addition to billions or trillions of dollars, complying with government paperwork, rules, and regulations instead of concentrating on making better and cheaper products. Profits are reduced, jobs are destroyed or never materialize in the first place, and stock prices are stifled. The instability of property rights caused by pervasive regulatory edicts leads investors to be much less certain about the value of the contracts they enter into, since rules and regulations are constantly changing, and sometimes seem to come out of nowhere.

As a rule, most government regulation produces very little, if any benefit to the consumers in whose names they are promulgated. That was the conclusion of Nobel laureate Ronald Coase, who as a University of Chicago law professor edited the prestigious Journal of Law and Economics for many years at a time when that journal published hundreds of scholarly studies of the effects of regulation. After editing and publishing hundreds of such studies Professor Coase (in J.F. Weston’s, Large Corporations in a Changing Society) concluded that:

There have been more serious studies made of government regulation of industry in the last fifteen years or so, particularly in the United States, than in the whole preceding period. These studies have been both quantitative and nonquantitative . . . the main lesson to be drawn from these studies is clear: they all tend to suggest that the regulation is either ineffective or that when it has a noticeable impact, on balance the effect is bad, so that consumers obtain a worse product or a higher-priced product or both as a result of regulation. Indeed, this result is found so uniformly as to create a puzzle: one would expect to find, in all these studies, at least some government programs that do more good than harm.

Universities with schools of business rarely teach anything about entrepreneurship in particular or the virtues of free-market capitalism in general, but offer numerous courses in “business law,” “administrative law,” “business ethics,” and “corporate social responsibility.” All of these courses focus on teaching students how to become good corporate bureaucrats who ignore profit making by pandering to the myriad agents of the state instead. Even accounting is taught according to the dictates of the Securities and Exchange Commission. Because of the stranglehold that government regulators have over every business more and more top business executives have backgrounds as lawyers, lobbyists, or publicists, the tools of governmental manipulation, as opposed to manufacturing and engineering.

Regulation has also all but destroyed free speech in the business world. Very few business people will speak out against government regulation out of fear of regulatory retribution, a tax audit, and other forms of harassment by the government. Many American corporations are so intimidated by the regulatory state that they give away billions of dollars to political activist groups that lobby for even more regulation and interventionism. The Capitol Research Center in Washington, D.C., estimated that for every philanthropic dollar that large American corporations give to pro free enterprise organizations like the Mises Institute they donate three dollars to anti free enterprise organizations. Some of them apparently believe that they are “buying” the good graces of regulators, but they are in reality giving away the “rope” with which the state will “hang” them economically. Others are simply victims of extortion by left-wing activist groups.

The federal bureaucracy is utterly incapable of managing its own budget let alone the budgetary decisions of thousands of private businesses. Government enterprises are notorious for being lazy, slothful, inefficient, and corrupt. The very notion that they should be in charge of business decision making on the part of thousands of private businesses is a farce that is destroying capitalism in America.