Within the last few days, the nation’s two most prominent newspapers have reported an interesting trend: businesses are seeking more government regulation. On Sunday, the New York Times ran an article entitled In Turnaround, Industries Seek U.S. Regulation. Yesterday’s Wall Street Journal featured Food Makers Get Appetite for Regulation.
Some might argue that this is a bit ironic. But it’s not. Like rain on your wedding day or a black fly in your Chardonnay, businesses’ clamoring for regulation is not ironic at all. Yet it is, like those occurrences, an awfully unfortunate situation.
An event is ironic, of course, only if there is something about the circumstances in which the event occurs that makes the event particularly unlikely or peculiar. To quote the great Mo Rocca (dissecting Ms. Morissette’s little ditty on VH1’s “I Love the 90s”):
Irony is the disparity between what you expect will happen and what does happen. So raining on your wedding day isn’t ironic; it’s just crappy. It would have been ironic if she had lived in a place like Seattle and traveled to the desert of Mexico for a wedding, and it ended up raining there, but not in Seattle.
Businesses’ clamoring to be regulated, then, cannot be ironic, for it is to be expected. Indeed, both the NYT and WSJ articles pointed to at least four reasons we’d expect businesses to pursue governmental regulation.
First, businesses want to avoid a multiplicity of rules. As a tomato grower states in the WSJ article, “We don’t want 50 different standards, but that’s what’s happening right now.” Federal regulation preempting other rules could simplify compliance for businesses.
Second, businesses want to avoid products liability suits. If it’s cheaper to comply with regulations than to defend, settle, and pay claims on lawsuits, businesses are better off procuring regulations that offer liability protection in exchange for compliance.
Third, businesses can procure regulations in order to achieve advantages over their competitors. In the last few years, American consumers have had access to an unprecedented number of low-priced, high-quality foreign goods. By convincing the government to mandate the production processes they currently use (or could easily adopt), incumbent domestic businesses can both erect barriers to entry and raise the costs of those rivals that do manage to enter the market.
Finally, businesses might seek regulation in order to boost consumer confidence in the products they sell. This is the theme emphasized by the president of the Grocery Manufacturers Association, who told the WSJ, “We need to have consumer confidence in the food products.”
These four “stories,” each related in both the NYT and WSJ articles, show that demanding to be regulated — like rain on your wedding day — isn’t at all ironic. But — like rain on your wedding day — it’s still unfortunate. Why do I say that? Because only the third story above — an unfortunate, anti-consumer story — can explain this current clamoring for regulation by potential regulatees.
The first story (“We’re doing this to avoid a multiplicity of rules”) isn’t convincing because the standards at issue aren’t being imposed by states and thus wouldn’t be preempted by federal regulation. As the WSJ noted, the conflicting standards have been set by private actors — “[B]uyers from Wal-Mart Stores Inc. to McDonald’s Corp. and Walt Disney Co. are requiring different safety standards and independent inspections.” Federal regulation wouldn’t change this, unless the regulatees could convince buyers to drop their different standards in favor of the uniform federal one. But couldn’t regulatees just as easily convince buyers to adopt a common, privately-crafted standard? It seems a multiplicity of standards could be avoided without imposing mandatory, government-crafted rules.
Voluntary standards could also be used to boost consumer confidence (story #4) and reduce products liability suits (story #2). Private certification agencies do a terrific job of guaranteeing quality and sustaining consumer confidence. The entire kosher food industry, for example, thrives without any governmental regulation of kosher status. And if reduction of tort liability is the real concern of businesses seeking regulation, they could ask legislators and regulators to promulgate consumer-protective, non-mandatory standards, compliance with which would immunize them from tort liability.
But the businesses begging to be regulated aren’t taking that tack. Instead, they’re seeking mandatory government regulations. Such mandates, which wouldn’t avoid a multiplicity of standards and wouldn’t be necessary for either consumer confidence or tort liability protection, would be both necessary and sufficient for another end: raising rivals’ costs. Thus, story #3 is most plausible.
And that should worry us, for when profit-maximizing businesses can enhance their market power (and thus their profit margins) by harnessing the power of the state to reduce competition, consumers lose. As Mo Rocca might say, organized industry’s attempt to do so “isn’t ironic; it’s just crappy.”
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There’s a solution for agency capture: it’s called an election. You don’t like the way an agency is being run, vote for a real president instead of a spoiled child. The president will then appoint someone new to run the agency, and take it in a direction consistent with the expressed preferences of the electorate.
But if you don’t like industry contaminating your air, poisoning your food, or exploiting your children, what are you supposed to do, other than sue or regulate? The market is simply not equipped to cope with these things, as the bad old days of the 19th century richly illustrated.
“Good regulation and labeling practices can help reduce informational assymetries (sic)…”
Winged pigs could also make pork transport less costly, although they could cause more problems for the FAA or border patrols.
We all understand the Ma and Pa Kettle theory of regulation. It always begins, “I we could do it right…” Let me suggest another theory; we can call it regulatory capture. It doesn’t assume that regulation will be good or bad, only that it will serve the values of those who invest the most in congressional campaigns and lobbying.
It never ceases to amaze me how much people who dwell on market failure consistently underestimate government failure, even when the root problem being discussed is the disproportionate influence of the most politically connected to get legislation at the expense of the rest of us.
Don’t you think there’s positive value in making industry incorporate its externalities, whether through tort liability or regultion? And isn’t there some value in allowing business to send less noisy signals of quality and authenticity to the market?
Just think about the problems with the term “organic”. Many people want to buy “organic” produce. But if there’s no standard for the label, then those who spend the least in terms of actual sustainable farming and healthy growing practices will reap the most benefit from slapping the term on the label. It would be difficult for the consumer to disintangle “cheap talk” from an authentic signal of quality.
So good regulation and labeling practices can help reduce informational assymetries, in a pro-consumer manner.
Bill–
Mea culpa! I remembered seeing reference to that song recently, but I had forgotten where. Please accept a belated tip o’ the hat.
Your and Geoff’s comments on your post are also worth noting. They raise the great debate over whether Ms. Morissette is crafty or ignorant. It is indeed ironic that a song called “Ironic” contains lyrics that aren’t. Thus, Mo Rocca continued: “Alanis always gets the last laugh though. We all sit here, saying her song isn’t ironic, but in fact, that’s pretty ironic that she wrote a song called ‘Ironic’ that wasn’t really ironic. Those Canadians are pretty crafty.” On the other hand, Alanis herself has conceded that she is a “malapropism queen.”
More at Wikipedia. (Of course!)
Thom: I used the same quote from Ms. Morissette last year on this very blog (see here). Where’s my hat tip? Bill