Conspiracy Theorist: 3/22

Reputation versus regulation

One is beneficial, the other counterproductive

Mark Luedtke

You’ve probably heard of Comcast Corporation. It’s a corporate giant. Wikipedia describes its scope: “Comcast Corporation, formerly registered as Comcast Holdings, is an American multinational mass media company and is the largest broadcasting and largest cable company in the world by revenue. It is the second largest pay-TV company after the AT&T-DirecTV acquisition, largest cable TV company and largest home Internet service provider in the United States, and the nation’s third largest home telephone service provider. Comcast services U.S. residential and commercial customers in 40 states and the District of Columbia.”

That’s big. It’s also one of the most hated companies in America. The Consumerist blog named Comcast “The Worst Company in America” in 2010 and 2014. 24/7 Wall Street ranks it the 10th most hated company.

But this article isn’t about Comcast. The 24/7 list contains other giant, famous companies like General Motors, Sony, Dish, McDonalds and more. This begs the question of how, in a market-driven economy, companies that people hate become giants.

Unfortunately, that’s the wrong question because we don’t live in a market-driven economy. We suffer an economy controlled by government coercion. Regulations make it possible for companies that consumers hate to grow into corporate giants.

Comcast is a perfect example. Government regulation of telecommunications prevents Comcast from having to compete with other major telecom companies like Time Warner. Regulations add great expense to businesses, crippling smaller competitors so both companies operate as virtual monopolies protected by the government in their areas of service. As with all monopolies, their products are more expensive and lower quality than they would be in a competitive marketplace. This is why the U.S. lags other countries in Internet bandwidth.

The Dodd-Frank bill did the same for banks. “A new study released by an independent government watchdog agency says a financial regulatory bill intended to help consumers is actually reducing choices and services and lowering the quality of service provided by smaller banks and financial institutions,” reported Andy Torbett. “[The Government Accounting Office] found the costs of complying with Dodd-Frank have increased, including ‘increases in staff, training, and time allocation for regulatory compliance and updates to compliance systems.’ Banks are making fewer loans in some cases, the researchers also found.” Government admits the problem, but it won’t change.

When I was a kid, even the biggest U.S. companies tended to focus on one business model. GM made cars. IBM made computers. AT&T provided telephone service. Japanese companies, on the other hand, made everything. Sony, Mitsubishi and others made cars, TVs, games and all kinds of different products. At that time, I didn’t realize Japan’s ancient system of patronage made those inefficient Japanese giants possible. Now what we call American cronyism has enabled similar, inefficient U.S. giants. Google, Apple, General Electric, Lockheed-Martin and others seem to make every product conceivable today.

The root problem is regulatory capture. The biggest companies pay the most money to produce regulations favorable to them and harmful to their competitors. The revolving door between giant corporations and regulatory bureaucracies makes the regulations more efficient at quashing competition. This revolving door makes giant corporations fascist agencies of the government. It’s more enlightening to think of CEOs of giant corporations as government secretaries or ministers than as businessmen.

In contrast, in a voluntary marketplace with robust competition, like on Amazon or Ebay, companies depend on reputation to make sales, so products and customer service are significantly better. Companies with bad
reputations go bankrupt.

The regulations I’m talking about are coercive regulations, all of which are harmful to consumers. Regulations from the private sector in the form of standards are beneficial to consumers. UL is a perfect example. Formerly Underwriters Laboratories, companies voluntarily pay UL to certify their products are safe. UL sets the standards for many electrical products, and every company values the UL certification you’ll find on every electrical device in your home.

The only effective regulatory regime known to man is voluntary regulation by reputation and standards in an unrestrained market.

Because government regulation restricts competition, limiting innovation and costing consumers more, it has significant negative effects. Mike Holly informs, “Although the causes of economic crises recurring throughout U.S. history and often spreading worldwide can’t be proven using empirical means, oppressive government regulations favoring special interests in relevant industries have preceded every crisis.”

Heavy regulation during Roosevelt’s New Deal kept the U.S. trapped the Great Depression for a decade. Guess what President Obama has been quietly doing since he took office.

The views and opinions expressed in Conspiracy Theorist are the views and/or opinions of the author and do not reflect the views and/or opinions of the Dayton City Paper or Dayton City Media and are published strictly for entertainment purposes.

Mark Luedtke is an electrical engineer with a degree from the University of Cincinnati and currently works for a Dayton attorney. He can be reached at MarkLuedtke@DaytonCityPaper.com.

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Mark Luedtke
Reach DCP freelance writer Mark Luedtke at MarkLuedtke@DaytonCityPaper.com.

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