One thing that often puzzles those watching political debates over anti-business legislation is the number of businesses which come out in support of laws which would seem aimed directly at their bottom line. Ranging from professional societies coming out for restrictive licensing, to polluting firms calling for environmental restrictions, to businesses even supporting onerous taxation or reporting requirements. Even bills which had few supporters, such as SOX reporting requirements still had some supporters, and some who would seem to have no interest in seeing the bills passed.¹ In fact, many times it seems that the companies lobbying for some bills are voting for their own destruction.

So, what is happening?

Sometimes it is nothing more than it seems. Companies, hoping to be the last to the chopping block, side with politicians against their own interests, hoping their support will buy them some small favor which will make the laws passed less harmful. Other time boards of directors have been saddled with bizarre "Corporate Social Responsibility" policies, which basically force them to act against their own interests in the name of being "good stewards of our resources".

But much of the time there is a different motive, one that neither the politicians nor the companies involved would admit, one which runs counter to all the rhetoric about regulation and anti-business laws, but one which drives many companies to support laws that by any reasonable evaluation could be called "anti-business." And that is good old self-interest².

You see, often businesses do have more to gain from a law than they have to lose, even if it may not be immediately obvious. For example, let us suppose a business environment dominated by a few large firms. Enacting massive regulatory requirements may make those firms much less profitable, but it also imposes a huge entry cost on any competitors. By insulating them against some competition, the law may actually allow the firms to raise prices enough to more than compensate for the increased costs. Or, maybe they will not be able to raise prices, but the existing firms are hidebound and inflexible enough that they expect younger, more agile competitors to drive them from business in the near future. By preventing that competition, the regulatory burden is worth the cost.

And that is a fact many neglect to consider when thinking about "anti-business" legislation. While it may impose costs, and may be intended to prevent abuses by big established firms, in many cases it actually benefits those big firms by freezing the status quo and preventing any newcomers from entering the market³. By making competition more difficult, either through imposing costs, forcing negotiations with unions (which tend to favor established firms), or imposing many regulatory hurdles (much easier for large established firms to meet), regulation often serves to protect the existing firms.

Nor are those the only ways in which the protections comes about. Besides imposing costs and burdens, regulation can also serve to freeze out competition by making the use of new technology more difficult⁴, requiring environmental reviews (making the creation of new plants much more difficult), or otherwise obstructing technological innovation or new construction upon which competitors rely. After all, regulation is inherently conservative (as I described in "Bureaucratic Management"), the incentives for regulators tend to strongly favor denying rather than approving any novelty. So, the more regulation we impose, the less innovation we will see. As, as existing firms tend to have more to fear from innovation than newcomers, it is in the interest of existing firms to see regulatory restrictions imposed.

And that, in a nutshell, is the whole story. By preventing competitors, imposing barriers to entry, and slowing new building and innovation, anti-business regulation often serves the interests of existing firms. Thus it is not surprising to see large existing companies, as well as professional societies⁵, arguing for measures which, on the surface, seem to be against their interests. With just a little more thought it often becomes clear that many laws intended to limit supposed abuses committed by businesses do nothing but allow other, very real, abuses.

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1. I do not include in this group businesses which lobby for lenient bankruptcy laws, as, despite the myth that corporations are mostly creditors and the great mass of "the common man" is made up of mostly debtors, most who know anything about corporations realize public corporations are largely debtors and stand to benefit from lenient bankruptcies. Even in the case where companies are debtors and creditors, such as finance companies, because corporate and individual bankruptcy laws are so clearly divided, companies can be for lenient corporate bankruptcy and strict personal bankruptcy. For a little more discussion of this, see my post "When Help Hurts".

2.  Some will probably point to my claims in  "Greed Versus Evil" and this article and argue that they are contradictory, that I claimed self-interest leads to socially beneficial actions, while in this case I am, saying self-interest leads businesses to support anti-business laws. However, that overlooks the major point of my earlier article. UNDER A FREE MARKET, conditions are such that by pursuing their self-interest everyone ends up working, more or less, for the public good. When you allow the government intrusive, destructive powers, at that point it is often in the interest of some parties to act in destructive ways, to use that power to their own advantage and to the detriment of others. That is precisely why I argue against giving the government such powers, as it begs for abuse. And that is my point. I never said those running businesses are above doing damaging things when it will benefit them, I was arguing only that the free market presents few if any such opportunities, while government intervention into the economy does.

3 It is not my purpose to discuss it here, but this also has some paradoxical effects. Laws intended to protect consumers often not only have their costs passed on to the consumers, but also end up increasing costs by preventing effective competition. In other words, regulatory schemes often end up neither forcing a more fair market nor benefiting consumers.

4. Again, it is beyond the scope of this essay, but this inherent preference for older and more established tends to act against the public interest in a number of ways. While "new" does not inherently mean better, over time, newer generally means both safer and less polluting. While any single innovation may not be an improvement, the overall tendency is toward greater safety and cleanliness. Yet the incentives put before regulators tend to favor the older, and hence less safe and more polluting. So in yet another way regulation tends to act in a way that does not promote the public good.

5. Professional societies have a dual reason to support licensing and regulation of their professions. Often they are the ones who provide the licensing body, so in that regard they obviously have an interest in such laws. However, even when they have no say in licensing it is still to their advantage, as placing barriers to entry keeps the pool of providers smaller than it would be otherwise, increasing the fees they can charge. Simple self-interest argues in favor of raising all the barriers to entry that they can. It is always sold as being for the public, to protect them from fraud, to make the profession more "respectable" or "professional", to ensure safety or something similar, but the fact that such laws are often proposed where no abuses occurred, and are promoted with excessive enthusiasm points to a much more mercenary reason in many cases.

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POSTSCRIPT

This post was mentioned in the list of future posts in "Upcoming Posts". Just want to assure my readers that I do, eventually, get around to writing the articles I promise.