
Why Businesses Can’t Stand Free Markets - petethomas
http://www.businessweek.com/news/2010-12-22/why-businesses-can-t-stand-free-markets-veronique-de-rugy.html
======
zoomzoom
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.

~~~
jacoblyles
>"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...](http://www.theatlanticwire.com/features/view/feature/How-Jimmy-Carter-
Saved-Craft-Beer-1766)

~~~
joe_the_user
_"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..."

------
jokermatt999
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".

~~~
jerf
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 _sub_ consciously 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.

~~~
sethg
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>)

~~~
mseebach
Why the assumption that Democrats are inherently more interested in campaign
finance reform? Obama ran the most expensive campaign in history and took
plenty of special interest money.

Seriously, nothing will happen if not even the comparably bright people on
this site is able to digest the fact that politics in the US is more
complicated (and, indeed more broken) than "democrat good, republican bad".
They're pretty much all scum, and the few honest people seem to be pretty well
distributed across the parties.

~~~
natnat
People assume that democrats are more interested in campaign finance reform
because most serious attempts to reform campaign finance laws have been
spearheaded by Democrats and opposed by establishment Republicans. Every
senator who voted against McCain-Feingold was a Republican, and many prominent
Republicans and conservative organizations (Mitch McConnell, Newt Gingrich,
Heritage Foundation, Cato Institute) approved of the Citizens United decision.

Every politician does whatever they can within the rules (and then some) to
get elected, but some want to change the rules because, for example, banning
corporate donations would probably hurt Republicans more than Democrats.

~~~
mseebach
Well, McCain sponsored and Bush signed McCain-Feingold. Second, Citizens
United isn't about campaign finance _per se_. Since the people spending money
under CU can't even talk to the campaign they support, this category of
spending is at least a layer removed from the candidate, and quid-pro-quo
becomes more difficult.

But finally, and my most important point: No, Republicans, to the extend they
have a common position doesn't want campaign finance reform. But neither does
the democrats (to the extend they have a common position). Most significantly,
a very prominent Democrat broke his pledge to take public financing in the
face of raising heaps of money and outspend his opponent 2:1.

I mean, perfectly honest, Democratic congress or not, is Obama going to get
behind serious campaign finance reform?

------
mseebach
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).

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

~~~
m0th87
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.

~~~
CPops
"Antitrust law provides some interesting insight into the question IMO. It was
established because laissez faire economics failed to prevent monopolies."

This is obviously false, both from a logical and historical view.

A monopoly cannot exist in a free market as no company, no matter how
successful, can actually restrict entry into any given market without the
government banning entry into that market. This is accomplished though various
legal means including licenses, trade barriers, so-called "intellectual
property" protections, and other tactics. Without the barriers for entry into
any market provided by government, establishment of a monopoly on any desired
service would be impossible.

Now, you might cite some historical examples like Standard Oil and the like as
examples of why monopoly protections are needed, but this standard example
only illustrates my case. The price of a gallon of oil, for example, was
around 30 cents in 1870 and fell to around 6 cents at the time of the anti-
trust trial. And their market share was continuously dropping despite their
supposed monopoly.

~~~
jokermatt999
So I take it you don't believe in natural monopolies?

~~~
doyoulikeworms
I'm not going to speak for him, but I sense that he does "believe" in natural
monopolies. He also probably feels like there's nothing /wrong/ with natural
monopolies, and I'd have to agree.

A natural monopoly can and ought to be defined as an entity with monopolistic
market share achieved WITHOUT government regulation, subsidies, and the like,
AND WITHOUT the illegal use of physical violence.

------
iwwr
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.

~~~
DannoHung
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?

~~~
anamax
> 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.

~~~
jbooth
What does "depend on gov't power" have to do with it? If you monopoly is
raking in billions and the cost of a congressional race is millions, then of
course you're gonna get the government on your side a bunch of the time.

The question is, is this a problem with "government" or a problem with
"bribery".

~~~
anamax
> What does "depend on gov't power" have to do with it?

It depends. Do you think that we should treat orphans who kill their parents
different from other orphans?

------
alexqgb
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.

------
known
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.

------
forensic
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.

------
ZeroGravitas
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.

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

------
grammaton
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.

------
joe_the_user
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?

------
jcampbell1
The author wrote a sensible article, with a trollish headline. I refuse to
bite.

~~~
pradocchia
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>

