Why Businesses Can’t Stand Free Markets

http://www.businessweek.com/news/2010-12-22/why-businesses-can-t-stand-free-markets-veronique-de-rugy.html

by petethomas • 16 years ago

125 134 16 years ago

iwwr2• 16 years ago

Absent the political temptation (using the state to "regulate away" the competition), businesses have no choice but to appeal to their consumers with better services.

jimrandomh• 16 years ago

If the only choices you can come up with are to make better services or to eliminate competition through regulation, you aren't being very creative. Corporations can, and do, eliminate competition with buyouts, with deliberate incompatibility, with exclusivity contracts, with spies and sabotage, and with a wide variety other creative, subtle, and sometimes unethical strategies.

iwwr2• 16 years ago

More often than not, the regulatory agencies become captured by the very businesses they are regulating.

DannoHung• 16 years ago

You mean they can't do things like slander competitors, disrupt supply chains through strategic purchases, strong arm vendors, and a whole host of other non-product based tactics that do nothing to show out the best product based choice?

edit: And I mean that's not getting into any of the ones that are currently illegal due to regulation. Ever heard of trusts?

p_nathan• 16 years ago

Clearly enough laws will solve the problem. Clearly.

anamax5• 16 years ago

> Ever heard of trusts?

Yes, my grandparents had one.

Oh, you were refering to the subject of "anti-trust".

Name three bad monopolies that didn't depend on govt power for their monopoly status.

yequalsx4• 16 years ago

There aren't only the two possibilities. Cartels come to mind. In a cartel situation appealing to consumers with better services is not a necessity.

jerf2• 16 years ago

As some of your repliers have pointed out, that's a bit simplistic. Part of the reason I call myself a "little-l libertarian" is that I don't think you can necessarily deregulate in the sense of just removing regulations; I think you need carefully constructed regulations to make sure we have a free market where competition on quality is the only remaining good option for businesses, and that takes work.

But it takes a good understanding of the way the market works and the way economics work, and certainly if you just slather regulation all over the system willy-nilly the most likely outcome is regulatory capture. This is what usually happens. Neither the right nor the left is very good at this sort of regulation at all.

mseebach6• 16 years ago

Ron Paul makes a very valid point about differentiating between capitalism, and what is described here, which he calls corporatism (somewhat at odds with the definition for this term offered in Wikipedia).

steveklabnik5• 16 years ago

The real question is, does capitalism just inevitably end up in coporatism?

mseebach6• 16 years ago

If that is indeed the question, it should be if capitalism and democracy doesn't naturally end up in corporatism.

There's an unfair amount of blame on the corporate end of this conflict, when the fact is that nothing of this could happen without willing politicians.

m0th87• 16 years ago

Antitrust law provides some interesting insight into the question IMO. It was established because laissez faire economics failed to prevent monopolies. Instead, a carefully crafted regulation supported capitalism.

I think true capitalism can't arise in a vacuum; it needs a regulatory support structure for enforcement.

te_platt• 16 years ago

No, human nature inevitably leads to corporatism. Let me give my definition of capitalism and corporatism to start my argument.

Capitalism: People are free to buy and sell their own property as they see fit. This necessarily implies people have enforced property rights. In other words people with economic freedom are practicing capitalism.

Corporatism: Groups of people organize (into corporations) in order to advance their interests (usually to make a profit). One way to advance their interests is to push for laws and regulations that favor themselves at the expense of others.

So in the United States we have a constitution designed to protect freedom from people who are trying to favor their own interests. Now we're all involved in both sides to some degree or another. I want freedom to do whatever I want. I also want restrictions on your freedom to do whatever you want to do to me. Where do we end up? Well we never end up anywhere, we just keep changing what the limits of our freedoms are. Human nature being what it is, given the opportunity we push for personal benefits at the expense of others freedoms - Corporatism.

joubert2• 16 years ago

I could find neither his name, nor an explanation of the distinction that you mention he makes, in this article. What is his argument?

steveklabnik5• 16 years ago

It's not in the article. See http://en.wikipedia.org/wiki/Corporatism#U.S._corporatism , which others would call http://en.wikipedia.org/wiki/Corporate_capitalism , which others would call http://en.wikipedia.org/wiki/Corporatism#Fascist_corporatism

mseebach6• 16 years ago

Socialism is a system where the government directly owns and manages businesses. Corporatism is a system where businesses are nominally in private hands, but are in fact controlled by the government. In a corporatist state, government officials often act in collusion with their favored business interests to design polices that give those interests a monopoly position, to the detriment of both competitors and consumers.

Source: http://www.campaignforliberty.com/article.php?view=806

metageek2• 16 years ago

I'm not sure you can make that distinction. Capitalism is using capital to get economic power. The kind of practices described here are exactly that.

fexl5• 16 years ago

No, the article describes the practice of acquiring political power, not economic power.

jokermatt9994• 16 years ago

Every time this topic comes up, I wonder why lobbying is legal. Can anyone give me a good explanation? The only one I've really heard is "lobbying is free speech, corporations need free speech".

skymt• 16 years ago

Who would outlaw lobbying? The politicians who benefit from it?

jokermatt9994• 16 years ago

I realize it's unlikely to happen of course. I just wanted to know the actual arguments justifying it. Even the most corrupt politician wouldn't come out and say "I'm pro-lobbying because my good buddy Megacorp says I should be, and he's paid me an awful lot to believe that."

tdoggette• 16 years ago

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

jerf2• 16 years ago

Lobbying is just a fancy word for talking to Congresspeople. Thanks to human psychology, it doesn't even have to look like the mental image many people have of the lobbyist walking in with a suitcase of cash for some major cash transfer in the law. All you have to do is spend time with the Congressperson until their hindbrain decides you are "one of theirs", and then even if they don't consciously steer things your way they will subconsciously steer them your way.

How do you outlaw that? What are you going to do, cloister your Congressperson in their office and forbid them from seeing people? It's actually a big part of their job. Are you going to say that if a Congressperson is considering a certain regulation of a certain industry, under no circumstances should they ever talk to anyone with any connection to that industry? As stupid as law may sometimes be today, that would actually be even stupider.

Yeah, sometimes it does devolve into the suitcase scenario but really that's quite unsubtle.

JonnieCache4• 16 years ago

>How do you outlaw that?

You don't. We change the societal web of incentives such that the people who become legislators are capable of making the distinction between unethical lobbying and their role as representatives on their own.

The people we're getting right now sometimes seem cognitively unable to draw this distinction at all.

EDIT: And how do we do that, I hear you cry? We'll what we're doing right now is a good start. Capitalists, entrepreneurs and some might say downright greedy people having loud, public conversations questioning and debating the role of private business in government, and vice-versa. If this keeps happening, the meme that perhaps such unrestrained lobbying might be harmful will permeate mainstream culture, and when the politicians of the future are preparing their campaign platforms, personal ethical responsibility in their relationship to industry will be at the top of their minds, because they perceive them to be at the top of the minds of those who will be voting for them. Obviously it is too ambitious to expect politicians to act selflessly. Therefore we must make it in their interests to act ethically.

And run-on-sentences. Those help too.

blangblang• 16 years ago

I always picture sacks with '$' on the side rather than suitcases, but I always have difficulty shaking the feeling that lobbying is basically a cash transaction. I constantly have to talk myself out of this. The following is a great, brief string of reasoning that helps: http://volokh.com/2010/01/24/money-and-speech-2

sethg2• 16 years ago

I think the fundamental problem is that running for national office in the US is extremely expensive¹, so anyone who wants the job and is not independently wealthy has to spend a lot of time fund-raising. Even if the fund-raising does not involve outright corruption, it requires an aspiring Congressperson to spend a lot of time hanging out with people who can afford to make large donations.

The best solution I can think of is public financing of elections, but I am very pessimistic about such a law getting through Congress, even if the Democrats retake the House in 2012.

¹According to figures gathered by the Campaign Finance Institute, it costs about $1.3M to win a House seat and about $7.5M to win a Senate seat. (http://www.cfinst.org/data/HistoricalStats.aspx)

joshkaufman• 16 years ago

Strict single term limits for all members of Congress would go a long way toward making this natural tendency manageable - if it's a natural cycle (and I think it is), then it makes sense to re-start that cycle as often as possible.

raintrees2• 16 years ago

I keep getting stuck on this point as well. One possible idea I keep coming back to: What about limiting campaign contributions to $1 per person/entity? I am guessing there would be quite a bit of backlash against this idea (Besides pols and lobbyists themselves, doesn't media get a lot of advertising dollars from campaigns?) but maybe if we can devalue the process significantly, it won't be quite so one-sided/game-able?

baddox2• 16 years ago

> How do you outlaw that?

You don't. In short, you de-incentivize lobbying by drastically reducing the size, scope, and budget of the federal government as mandated in the Constitution.

Andrew_Quentin2• 16 years ago

I do not think the problem is them talking. I think the problem is them giving money indirectly through campaign contributions.

One statistic the article states is that some organisation spent about 700,000 dollars in lobbying and 2.5 millions in campaign contributions. I only wonder which was more effective.

anamax5• 16 years ago

> I've really heard is "lobbying is free speech, corporations need free speech".

Is it bad if I write a letter or talk with my congress critter? How about if I put up a sign?

How about if you and I get together to do so?

Corporations are voluntary aggregations of people.

sethg2• 16 years ago

Actually, a corporation is an entity empowered by law to do certain things (e.g., shield its owners from personal liability) that a mere aggregation of people cannot do. The Supreme Court majority in the Citizens United case missed this important distinction.

I think it’s possible to draw logical and constitutional lines between

¶ 100 people writing letters to their Congresscritters advocating for the same policy

¶ a manager of a corporation (with 100 shareholders) writing Congresscritters to advocate for some policy (that not all 100 shareholders think is a good idea)

¶ a corporation hiring a lobbyist to be its permanent advocate in Washington

davetufts3• 16 years ago

The problem is not lobbying. A lobbyist should be free to ask a member of Congress if their organization can have a tax break. The problem is the Congressman who grants the tax break. We need to stop thinking of our representatives as innocent victims of lobbyist culture.

borism3• 16 years ago

This is an interesting chicken-and-egg question we had not so long before - is it legislature or is it business that produces corruption? The answer is not black and white and depends on jurisdiction.

Eliezer• 16 years ago

Because it would be impossible to make illegal effectively - that would just drive it further underground and make it even more invisible.

InclinedPlane• 16 years ago

The problem is not lobbying, that's a symptom. The problem is deep and multi-fold. On the one hand you have a very broken and ineffectual news media which focuses on trivialities and scandal and otherwise ignores all else. A media which has perverted the process of gaining elected office by making it unpalateable for most folks, leaving it only to career politicians and glory hounds. On the other hand you have a bloated and excessively powerful government. The increase in tax revenues, laws, and regulations in the last several generations has concentrated a great deal of power and control of money in DC and in state capitols. This excessive power invites corruption, when every business depends on the activity of congress then every business will do its best to influence congress.

The only long term solution to the problem is to improve journalism (which is happening slowly) to encourage a better class of office seekers combined with a reduction in the importance of government in business and daily lives, to make it less worthwhile and less necessary for businesses to influence government.

pdx• 16 years ago

Imagine you are a legislator in the US. You are one of 535 people who pass the laws that effect every industry and group of the country. How arrogant would it be to assume that you can make good decisions about a certain industry or group, without actually talking to representatives from that group?

Now imagine you're a key figure in an industry, such as, say, the internet industry, and you have opinions about things, such as, say, net neutrality. How foolish would it be for you not to attempt to influence the decision makers by providing them with your view of the issue?

This is what lobbying is. It has nothing to do with free speech, and everything to do with information flow. You certainly would never outlaw it.

Naga• 16 years ago

Except the problem is the only people whose voices are heard in this are the rich. Telecoms can afford to do this, while the people on the other side of it don't have the time or means to.

joshrule2• 16 years ago

Corporations have rights to free speech only if they are people under the law. Currently, they are, but I think there are major problems with that. It takes responsibility from those making decisions and puts it on some general body.

Corporations don't make decisions, though. People make decisions. We act as individuals. France doesn't attack Britain. Soldiers in one army attack soldiers in another army. We act as individuals. http://en.wikipedia.org/wiki/Methodological_individualism

I don't agree with everything it said, but The Corporation makes some good points about how corporations as legal entities allow people to abdicate responsibility. Watch it on Youtube here: http://bit.ly/hb0wuL.

ramanujan3• 16 years ago

Hmmm. How is that substantively different from the process of electing a representative via democracy?

ramanujan3• 16 years ago

Suppose Congress is going to pass a law. They don't realize it, but it will devastate your industry by changing the rules midgame. Think about what Ubercab ("illegal cab") or AirBnb ("illegal hotel") recently went through.

Now, imagine that you can't sound the alarm. This is going to put people out of work and ruin your business, but you can't say anything.

That's what it means to prohibit lobbying.

To stop lobbying, you need to stop Congressmen from getting power-drunk and passing random rules and regulations that affect the economy based on something they just read in the New York Times (like the recent debit/credit thing). Companies generally don't want to lobby, they just do it as a defensive measure.

baddox2• 16 years ago

Lobbying is a symptom of the problem that the federal government has way too much money to hand out to various states, corporations, industries, government programs, etc. The federal government as described in the Constitution should be orders of magnitude smaller than it is now, and should have orders of magnitude fewer funds to disperse.

Lobbying itself shouldn't be illegal, it should just be de-incentivized by controlling the federal government's size and scope per the Constitution. This would also fix a lot of the corruption among federal representatives, who all too often are judged for the amount of booty they can bring back to their states.

ZeroGravitas• 16 years ago

This is wrong (or at least incomplete) for the same reasons as the commonly heard "Businesses don't like Free Software". Yes, some businesses, usually the entrenched incumbents don't want free markets or free software, but the up and coming businesses that are trying to compete with those interests often need them to make any headway at all.

jimmyk5• 16 years ago

This was touched on lightly in the article: "They lobby lawmakers to constrain the same free markets in which they originally achieved success."

jcampbell1• 16 years ago

The author wrote a sensible article, with a trollish headline. I refuse to bite.

pradocchia• 16 years ago

This was a standard refrain of George Stigler and Milton Friedman, actually. Don't think they were trolling.

cf. "The Suicidal Impulses of the Business Community":

http://www.nabe.com/publib/friedman_adam_smith.html

zoomzoom• 16 years ago

I think the lesson to learn here is that there is no such thing as a "free market" - all markets are constrained to some degree by the regulations that shape them. Markets are human creations just like languages, and the rules around them are designed either consciously or passively.

When you let special interest groups define the rules, they tend to define them in their own favor. In the modern industrial state, corporations have discovered a very successful tactic of evading conscious interference by proclaiming their desire for "free markets" and then lobbying behind the scenes to tilt markets in their favor.

When people wake up to this reality and smart businesspeople like those on HN stop pretending that a "free market" is some god-given natural state of affairs, then we will be able to level the playing field for small businesses against the corporate interests. Smart regulations are important to avoid abuse of power.

presidentender• 16 years ago

I would argue that the present market is certainly not free, but that does not make a free (that is, unregulated) market impossible.

pbz• 16 years ago

Or desirable.

joe_the_user3• 16 years ago

Uh,

The problem is it also doesn't make a free market *well-defined".

If in a discussion "free market" has a willo-the-wisp quality in which whatever existences and is undesirable "isn't really a free market", then you haven't shown that "free market" is anything but rhetorical device.

jacoblyles2• 16 years ago

>"I think the lesson to learn here is that there is no such thing as a 'free market'"

That's a popular piece of rhetoric, but I don't buy it. Certainly a market with government handouts or regulations that bias the interests of some players over others is less free than a market without such interference. I think we can say that the transportation market was "more free" after competition killing regulation was removed from the trucking industry under the Carter administration, for example[1]. (People forget about Carter's libertarian streak, but libertarians don't. You can also thank Carter for deregulation of air travel[2] and delicious microbrewed beer[3].)

Rather than lobbying to bias the market in favor of our preferred people, as you suggest we do, it is perfectly possible to lobby in favor of less special-interest rules. In fact there is a significant minority of people in this country who do just that. We call ourselves "libertarians".

[1]http://en.wikipedia.org/wiki/Motor_Carrier_Act_of_1980

[2]http://en.wikipedia.org/wiki/Airline_Deregulation_Act

[3]http://www.theatlanticwire.com/features/view/feature/How-Jim...

guelo2• 16 years ago

Yea that's been working out really well. /sarcasm

joe_the_user3• 16 years ago

"That's a popular piece of rhetoric, but I don't buy it. Certainly a market with government handouts or regulations that bias the interests of some players over others is less free than a market without such interference."

Really? What about a market in which a private entity behaves similarly or worse? The British East India company, for example, literally owned a country. With only the actions of a "private" entity, India's market were open primarily to ... British goods. http://en.wikipedia.org/wiki/Company_rule_in_India ("During the period, 1780–1860, India changed from being an exporter of processed goods for which it received payment in bullion, to being an exporter of raw materials and a buyer of manufactured goods." )

What I've said to the libertarians here is "when everything is private, I will invest in the tanks, I think they'll be a profit center..."

num1• 16 years ago

I think the lesson to learn here is that free markets require maintenance and defending. A free market is by its very definition the natural state of affairs. In not only the modern industrial state, but every state America has known, we have added regulation upon regulation to the system to the point that the only way to be an entrepreneur is to create a completely new industry because it hasn't been regulated yet. When's the last time you heard of a banking or a farming startup? (And if you mention BankSimple, can't you hear them practically begging for mercy from their regulations in the blog posts they publish?)

We need to wake up and free the market. A lack of regulations (as has been proven) is the only way to avoid abuse of power.

known• 16 years ago

Nice article. Differentiates between an Entrepreneur and a BigCo. The bigger picture is

    Chinese capitalism  = American capitalism - Human rights
    Indian capitalism   = American capitalism + Wage slavery

Hence American capitalism is not scalable in globalized economy/free markets.

grammaton• 16 years ago

Seeing this puts most objectivist / libertarian arguments in a new light. I can certainly see how they're hot under the collar about government regulation and how it creates unfair market places. That said, I'm still far from convinced that an unregulated market is the answer.

alexqgb2• 16 years ago

Dealing with this problem is the central problem for 'Fix Congress First'(http://www.fixcongressfirst.org/), the anti-corruption organization started by Larry Lessig.

It's focused on the pernicious effect of the revolving door between K St. lobbyists and Congressional staffs, and the way private election finance keeps these toxic exchanges alive and dangerous.

forensic2• 16 years ago

This all comes down to psychology.

Society will be shaped in whatever way the powerful wish it to be shaped.

Right now power comes from the ability to control the minds of the masses - to lull them into sleep and avoid their wrath.

No system is ever going to solve this issue. The issue will be solved when enough people decide that they prefer to live in a society with free markets.

Right now the public does not enforce that.

joe_the_user3• 16 years ago

Who are these mysterious "consumers"?

They don't seem to be attached to businesses, since they seem benefit from the things we hear that the businesses hate.

They don't even seem to be ordinary worker, since most workers also work for these same businesses.

Who can answer this for me?

Why Businesses Can’t Stand Free Markets

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