Opinion

Regulators should regulate economy, not intervene in it

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Ryan Young & Jacqueline Otto
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      Ryan Young & Jacqueline Otto

      Ryan Young is Fellow in Regulatory Studies at the Competitive Enterprise Institute, where Jacqueline Otto is a Research Associate.

Just as surely as summer is followed by autumn, it seems that these days every proposed corporate merger is followed by antitrust complaints — often from the merging companies’ competitors. The wireless industry is the latest sector to suffer this problem. Sprint, America’s third-largest carrier, has emerged as a chief opponent of a proposed merger of AT&T and T-Mobile, two of its main rivals. “No divestitures, no fixes, no conditions,” a senior Sprint government affairs officer told Ars Technica. “We want it stopped.” Sprint argues that the merger will create a duopoly in the telecommunications world, a claim AT&T calls “dystopian” and inaccurate.

Sprint’s actions suggest that it doesn’t want to compete with a merged AT&T/T-Mobile, and finds it easier to file an antitrust complaint than offer a better service. This is bad for consumers and for the economy, but our existing antitrust laws encourage companies to compete in order to win over bureaucrats in Washington instead of competing in the marketplace — a privilege the framers of the Constitution never intended to grant.

Article I, Section 8 of the Constitution gives Congress the power to regulate commerce. The goal was to ensure that commerce among the states would take place under clear, predictable, and understandable rules that do not favor some parties over others. According to Georgetown law professor Randy Barnett, our framers granted Congress the power to regulate domestic commerce in order “to make commerce regular.” Yet today, the term “regulator” is a misnomer. In practice, most regulators don’t actually regulate; they intervene.

One important reason regulators intervene is that many businesses want them to — businesses spend considerable effort and resources lobbying Washington to that end. For the most part, American companies compete on quality, price, or other consumer preferences. But on too many occasions, some companies try to use regulatory interventions to dispatch the competition. Sprint’s efforts to squander AT&T’s proposed purchase of T-Mobile are emblematic of this troubling trend.

The temptation for businesses to seek special favors from government extends beyond antitrust laws, to virtually the entire federal regulatory apparatus. Take energy efficiency. Compact fluorescent light bulbs are expected to completely replace incandescent light bulbs, even though the latter option remains popular among many consumers. A 2007 federal energy bill essentially made incandescent light bulbs illegal, in no small part thanks to the lobbying efforts of leading compact fluorescent bulb manufacturers General Electric and Cree, Inc.

Economic interventions that purport to protect consumers often advantage certain firms at the expense of others. An established company with experience complying with government mandates gains a competitive advantage when new rules are implemented that smaller companies cannot afford. For example, H&R Block spent as much as $1 million lobbying for mandatory licensing requirements for all tax preparers, a move that would put many individual preparers out of business.

The kind of regulation our framers desired was not about prohibiting products or foreclosing competition, but about creating the conditions and institutions necessary for regular commerce to flourish. These institutions include the rule of law, enforceable contracts, secure property rights, and peaceable resolution of disputes. When intervention undermines those, it hurts entrepreneurs, small businesses, and consumers.

Once the modus operandi for an industry becomes lobbying hard instead of working hard, it becomes more difficult for entrepreneurs to start new businesses, for smaller firms to thrive, and for consumers to choose. Real regulation enables competition. Intervention undermines it. There is a world of difference between real regulation and intervention. America would be a better place with more of the former and less of the latter.

Ryan Young is Fellow in Regulatory Studies at the Competitive Enterprise Institute, where Jacqueline Otto is a Research Associate.

  • johno413

    The biggest problem with regulation and regulators is that it cannot be separated from politics and political favoritism. There will always be winners and losers. If the winners – or those who financially benefit – are favored by the political climate, there is rarely successful contest to the regulations. Many who benefit reward both sides. So, even “bad” regulations easily stay in place until a catastrophe brings their abusive nature to light.

    The are founded by noble desires, but corrupted by the common-man elected class hacks, for the most part.

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