The Regulatory-Industrial Complex

[This article was originally printed in the Free Market, September 1990. It was reprinted in The Left, the Right, and the State (2008).]

Socialists want socialism for everyone else, but capitalism for themselves, while capitalists want capitalism for everyone else, but socialism for themselves.

Neither Ted Kennedy nor Jane Fonda practices a vow of poverty, nor are they taking any homeless into their mansions, while too many big companies try to short-circuit the market with government privileges. And one way they do it is through the regulatory agencies that acne Washington, DC.

If I may make a public confession (counting on the charity of Mises Daily readers): I used to work for the US Congress. I’ve since gone straight, of course, but the experience had its value, much as the future criminologist might benefit from serving with the James Gang.

For one thing, being on Capitol Hill showed me that, unlike the republic of the Founding Fathers’ vision, our DC Leviathan exists only to extract money and power from the people for itself and the special interests.

Ludwig von Mises called this an inevitable “caste conflict.” There can be no natural class conflict in society, Mises showed, since the free market harmonizes all economic interests, but in a system of government-granted privileges, there must be a struggle between those who live off the government and the rest of us. It is a disguised struggle, of course, since truth threatens the loot.

When I worked on Capitol Hill, Jimmy Carter was bleating about the energy crisis and promising to punish big oil with a “windfall profits tax.” But I saw that the lobbyists pushing for the tax were from the big oil companies.

And, after a moment’s thought, it was easy to realize why. There was no windfall-profits tax in Saudi Arabia, but it did fall heavily on Oklahoma. And as intended, the tax aided the big companies that imported oil by punishing their competitors, smaller, independent firms.

In the ensuing restructuring of the industry, also brought about by the price and allocation regulations of the Department of Energy, the big firms bought up domestic capacity at fire-sale prices, and then the Reagan administration repealed the tax and the regulations. Meanwhile, the big companies received contracts from the Department of Energy to produce money-losing “alternative fuels.”

In every administration, the tools of inflation, borrowing, taxation, and regulation are used to transfer wealth from the people to the government and its cronies.

At times, one or another of these tools becomes politically dangerous, so the government alters the mix. That’s why the Reagan administration switched from taxes and inflation to borrowing, and it’s why the Bush administration, with the deficit a liability, calls for more taxes, inflation, and regulation.

A tremendous amount is at stake in the re-regulation of the economy advocated by the Bush administration. Just one clause in the Federal Register can mean billions for a favored firm or industry, and disaster for its competitors, which is why lobbyists cluster around the Capitol like flies around a garbage can.

While claiming to need more money for — among other vital projects — a trip to Mars supervised by Dan Quayle, the president is boosting the budget of every regulatory agency in Washington.

Here are just some of those agencies, and the way they function: Founded by Richard Nixon, the Occupational Safety and Health Administration is an antientrepreneur agency. Not only does OSHA target small- and medium-sized businesses, its regulatory cases are easily handled by Exxon’s squad of lawyers, while they can bankrupt a small firm.

Also founded by Nixon, the Consumer Product Safety Commission issues regulations drawn up in open consultation with big business — regulations that often conform exactly to what those firms are already doing. Small businesses, on the other hand, must spend heavily to comply.

Another Nixon creation is the Environmental Protection Agency, whose budget is larded with the influence of politically connected businesses, and whose regulations buttress established industries and discriminate against entrepreneurs — by, for example, legalizing pollution for existing companies but making new firms spend heavily.

The Department of Housing and Urban Development was founded by Lyndon B. Johnson, but its roots stretch back to the housing policy of the New Deal, whose explicit purpose was to subsidize builders of rental and single-family housing. Since LBJ’s Great Society, HUD has subsidized builders of public-housing projects, and of subsidized private housing. How can anyone be surprised that fat cats use HUD to line their pockets? That was its purpose.

The Securities and Exchange Commission was established by Franklin D. Roosevelt, with its legislation written by corporate lawyers to cartelize the market for big Wall Street firms. Over the years, the SEC has stopped many new stock issues by smaller companies, who might grow and compete with the industrial and commercial giants aligned with the big Wall Street firms. And right now, it is lessening competition in the futures and commodities markets.

The Interstate Commerce Commission was created in 1887 to stop “cut-throat” competition among railroads (i.e., competitive pricing) and to enforce high prices. Later amendments extended its power to trucking and other forms of transportation, where it also prevented competition. During the Carter administration, much of the ICC’s power was trimmed, but some of this was undone in the Reagan administration.

The Federal Communications Commission was established by Herbert Hoover to prevent private property in radio frequencies, and to place ownership in the hands of the government. The FCC set up the network system, whose licenses went to politically connected businessmen, and delayed technological breakthroughs that might have threatened the networks. There was some deregulation during the Reagan administration — although it was the development of cable TV that did the most good, by circumventing the networks.

The Department of Agriculture runs America’s farming on behalf of producers, keeping prices high, profits up, imports out, and new products off the shelves. We can’t know what food prices would be in the absence of the appropriately initialed DOA, only that food would be much cheaper. Now, for the first time since the farm program was established by Herbert Hoover, as a copy of the Federal Food Administration he ran during World War I, we are seeing widespread criticism of farm welfare.

The Federal Trade Commission — as shown by the fascist-deco statue in front of its headquarters — claims to “tame” the “wild horse of the market” on behalf of the public. Since its founding in 1914, however, it has restrained the market to the benefit of established firms. That’s why the chief lobbyists for the FTC were all from big business.

When then-Congressman Steve Symms (R-ID) tried to partially deregulate the Food and Drug Administration in the 1970s to allow more new drugs, he was stopped by the big drug companies and their trade association. Why? Because the FDA exists to protect them.

OSHA, CPSC, EPA, HUD, SEC, ICC, FCC, DOA, FTC, FDA — I could go on and on, through the entire alphabet from Hell. I have only scratched the villainous surface. But according to the average history or economics text, these agencies emerged in response to public demand. There is never a hint of the regulatory-industrial complex. We’re told that the public is being served. And it is: on a platter.