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Right sizng and human scale - Is government regulation of private business vital in today's world?
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Fifth Installent - Is government regulation of private business vital in today's world?
In a totally honest world where the playing field remains level through all business cycles, there would probably be no need for government regulation of business. The commercial world of John Gault described by Ayn Rand in ‘Atlas Shrugged’ would be possible. In such a utopian circumstance, markets provide honest and rapid feedback continuously so if a business is not delivering any value to its market it fails without fanfare or delay.
In such an ideal world, would people be less inclined to take unfair advantage of each other? Would they feel the need to pursue wealth beyond what is considered rational or reasonable? Would they be less likely to design clever incentive plans for creating huge compensation packages that are not indexed to anything other than their ability to artificially manipulate stock prices for pre-designated time periods? They would also probably not believe it necessary to hire expensive lobbyists to influence lawmakers to pass legislation that leads to gaining competitive advantages that have nothing to do with product or service superiority.
Were all these conditions non-existent, regulation would be absolutely unnecessary. Business would be more like the game of golf where the players are expected to monitors their own conduct when application of penalty strokes for infractions are necessary.
We have been learning some very hard lessons lately that suggest we do not live in a very honest world. Much too often people who control of extreme amounts of power and wealth do not act very fair-mindedly in their dealings with those who do not have similar advantage.
During the last eight years we have seen that unchecked power can do some hideous damage to our country and the world. Starting with Reagan administration, efforts have been largely successful to remove needed regulations that were established during and following the depression of the 1930s to prevent such a disastrous event from being repeating. Every presidential administration from 1980 on, whether Democrat and Republican, have continued to chip away at regulations that protect the American people.
Today there are so few effective regulations monitoring and controlling the financial sector that it seems almost anything goes. There really is no such thing as anti-trust in actual practice. Mergers continue to grow in scale. The larger they are, the more Wall Street loves them, and the more likely they are to fail to meet their loudly proclaimed expectations. And they fail spectacularly much too frequently.
When the mergers are in the early stages, the corporate captains regale the stockholders with promises of how much better the company will become due to the natural synergies that will occur. Before the first anniversary there is usually at least one significant reduction in force, many times referred to as ‘right-sizing’, resultantly dumping many thousand people onto the jobless rolls. This is necessary due to the overlaps and duplications in staffing, so we are told. But CEO’s often declare that, ‘our people are our greatest asset!’ in the early stages of the merging process. These mega-mergers and resulting monster corporations are very challenging to operate and regulate. They can throw more money and lobbying force at the regulators than the regulatory agencies can fend off.
When the regulations such as the Glass-Steagall Act were in place, they worked fairly well. Banks were generally stable because they were required to maintain sufficient reserves to cover losses and market downturns that reduced the value of collateral. Larger mergers were discouraged or denied approval because they reduced healthy competition in the marketplace and potentially placed consumers at a disadvantage.
One of the arguments that big business successfully used to eliminate regulation was the fact that everything seemed to be working well and therefore proved the lack of need for regulations. The irony was that it was the regulations that were keeping matters in alignment and helping things work so well.
Do you know anyone who suffers from schizophrenia or bi-polar disease? If they are on proper medication and are taking the medication as prescribed they are probably functioning very normally and people who do not know them well would never notice their disease. Then the patient after an extended period of effective medication decides they must be well now and no longer in need of medication to feel normal. So they stop taking the medication. After being off the medication for a short period of time the ailment returns in full force and they find themselves in trouble. That is exactly the situation deregulation of business has recently demonstrated. They need to get back on their medication because they are not able to function effectively without it.
We have seen far too many cases, evidenced by all the corporate titans that are serving prison terms, where left to their own governance huge business enterprises destroy themselves due to lack of ethics and discipline. The list of disgraced companies is a long one including Enron, Arthur Anderson, Tyco, Worldcom, Halliburton, to name just a few.
Perhaps the unpleasant reality is that power really does corrupt, and absolute power really does corrupt absolutely. Because there are so many people in positions of privilege and power who lack the personal integrity to operate honestly without being policed, we have to face the reality that we need important regulations to protect the public.
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