Roderick T. Long over at the art of the possible blog has posted a challenge to the popularly held notion that the United States of the 19th century was a free market utopia:
Every part of this story is false. To begin with, there never was anything remotely like a period of laissez-faire in American history (at least not if “laissez-faire” means “let the market operate freely” as opposed to “let the rich and powerful help themselves to other people’s property”). The regulatory state was deeply involved from the start, particularly in the banking and currency industries and in the assignment of property titles to land.
Read the whole thing. But in essence, the article argues that far from opposing regulation, business - particularly big business - have been strong proponents of regulation. The rather cogent argument presented by Long is that an unregulated monopoly/oligopoly is likely at attract greater competition due to the premiums it can demand from the market. This extra competition drive prices down as the monopolist/oligopolist loses their pricing power. That is why business prefer legal monopolies/oligopolies. Industries and sectors that can lobby for government regulation that keeps competition out, will entrench existing businesses' pricing power.
Long argues that these same businesses publicly rail against government intervention to maintain a thin veneer of protest and to give politicians the cover needed to enact these regulations.
That this should be so is not terribly surprising; wealthy, concentrated interests are inevitably going to have a greater impact on the political process than poorer and more dispersed ones. (Contrary to popular wisdom, which has the contrast gong the other way, it is only on the market, where the price system aggregates the preferences of the poorer and more dispersed, that the latter can systematically trounce the influence of business power.) What is more surprising is that such blatantly and thoroughgoingly pro-business legislation should have been perceived as anti-business. [emphasis mine]
However, I would dispute Long's account of business' duplicity with regards to regulation - at least as evidenced contemporaneously. Take business and their response to the pressure that has been building up over the last decade to enact a (global) carbon tax. For some time, earlier in the 1990s, business strenuously argued against it (profits would fall, jobs lost, capital investments mothballed, etc). Recently their tune has changed - even within the industries most affected. Consider the mining industry. Most mining companies are now not putting up a fight against the idea of a carbon tax. In fact, their annual reports and TV advertisements gloat about how environmentally friendly their operations are and the extent to which environmental risk mitigation strategies are incorporated into their business models. When the government is willing to shower business with free money, subsidies, I don't blame them.
It was only this week, that the Federal government announced a $A100m research centre that will fund research into carbon, capture and storage in league with the major energy companies. And only a few months after the Federal government handed out another $A35m to Toyota to research and build a green car in Australia which they were going to build here anyway. These regulations and subsidies increase the barriers to entry for new participants, or more pertinently, the production of complementary goods and services, maintain oligopolies' market power.
And if ever there were a clearer example of government supporting the anti-competitive practice of business, then it is the US Treasury's bail out of financial powerhouses drunk on their recent success not noticing the cliff that lay ahead. The Treasury Secretary was the former head of Goldman Sachs. He had brought over quite a few of his old IB mates to the Treasury. It should therefore not surprise observers that Paulson argued a catastrophe was facing financial markets were he not to receive carte blanche powers to distribute $US800bn + to ailing IBs and financial institutions. Part of me doesn't doubt the truthfulness of Paulson's argument - markets are manic and no trust is in the system. However, the cynic in me isn't satisfied. Arnold Kling fuels the cynic's fire.