Encouraging Economic Competition without Punishing Good Companies

[doctorfunk]

I've put a lot of thought into this topic and I'd like to hear what you think about it. How does the US government encourage competition in business without unnecessary and burdensome regulations on estabalished companies? How should they limit barriers to entry but limit the impact on large companies?

I think it is the job of the government to prevent monopolies and crony capitalism. I don't think any company should be too big to fail. But how do you create regulations that don't punish the sucessful? Take manufacturing for example: new companies are seriously disadvantaged because they cannot receive the same benefits of scale that a large company can. In addition to the startup costs (often highly inflated by gov regulations), they cannot negotiate as well with suppliers or artificially set higher prices like an industry giant can.

I think to really get the economy growing again, we need more smaller and more agile companies that can adapt to change better, but given the current landscape it's very hard for new businesses to make it. The deck is highly stacked against them, some of which by natural consequences of capitalism and some by artifical means. Is there a way to unstack the deck without unjustly punishing others?

I think some of the problem is the way the government allowed some of these companies to grow. Mergers and acquisitions are a part of business, but when large players merge it raises the barrier to entry. Deregulation may be of benefit, but I think that it would just increase profits for the large companies.

Thoughts?

 

[harikaried]

how do you create regulations that don't punish the sucessful?

Take away the regulations that currently benefit the crony guys. Doug Wead gave a good example of McDonald's getting US federal subsidies to compete in foreign countries. That means other burger shops including mom-n-pop stores are paying for their competitor, McDonald's.

McDonald's even got a bailout from the Federal Reserve from the partial audit showing $16 trillion of loans.

And McDonald's also got a waiver from Obamacare, so all the other burger shops are forced to divert profits towards paying the healthcare reform while McDonald's saves big money.

On that topic of regulations, a lot of potential small business people don't bother because they're afraid of the legal issues of starting a business. There's plenty of big federal regulations to worry about, but Ron Paul has introduced legislation to give a grace period for small businesses (<$7m market capitalization):

Ron Paul Offers Relief for Small Business
http://www.ronpaul2012.com/2011/10/28/ron-paul-offers-relief-for-small-business/

 

[doctorfunk]

Take away the regulations that currently benefit the crony guys. Doug Wead gave a good example of McDonald's getting US federal subsidies to compete in foreign countries. That means other burger shops including mom-n-pop stores are paying for their competitor, McDonald's.

McDonald's even got a bailout from the Federal Reserve from the partial audit showing $16 trillion of loans.

And McDonald's also got a waiver from Obamacare, so all the other burger shops are forced to divert profits towards paying the healthcare reform while McDonald's saves big money.

You can't take away all of the regulations that provide greater benefit to large companies. The USDA/FDA and other agencies have regulations the disproportionally affect smaller businesses more, but they are also necessary for consumer safety. And that doesn't even touch on McDonald's being about to get ingredients for cheaper or their ability to buy suppliers or distributers (don't know how much of this they do).

I would agree though that there is also a lot of crony capitalism and removing that aspect would at least make it more competitive. But would that be enough?

 

[harikaried]

The USDA/FDA and other agencies have regulations the disproportionally affect smaller businesses more, but they are also necessary for consumer safety.

Given the USDA's track record, they aren't doing that great of a job of keeping consumers safe. But you make it sound like there would be no consumer safety without those federal agencies.

Businesses do well if consumers keep coming back to buy their products. A sick or dead customer is more than a single lost sale.

Doug Wead has a good writeup on the FDA:

http://dougwead.wordpress.com/2011/08/12/ron-paul-and-the-fda/

But to summarize, Costco wanted to keep their customers safe by testing the meat, but the FDA, which hired Tyson's Food employees, approved Tyson's meat with their regulations. Tyson said they would not sell to Costco if Costco tested the meat. Is the FDA keeping us safe or is it helping Tyson sell meat?

 

[LinuxJedi]

The USDA/FDA and other agencies have regulations the disproportionally affect smaller businesses more, but they are also necessary for consumer safety.

Are regulations really required for safety? Look at any disaster that affects a company... the airlines in the EU after the Iceland volcano eruption... Japanese reactor... the regulations all go out the window in the name of the economy. The airlines were warned by engineers that flying was unsafe... but it was a political or economic decision (i.e. one bought and paid for). Look at Pfizer... do you really think they care about your safety? The FDA was supposed to shut them down, and did not because they are too big to fail. Check this out: http://articles.cnn.com/2010-04-02/health/pfizer.bextra_1_bextra-pfizer-and-pharmacia-generic-drugs?_s=PM:HEALTH

If you want people to be more safe... you create an environment in which safety issues are a criminal matter. The person who made the decision to put people into danger are charged criminally. The executive who thought bonuses are more important goes to jail. Right now, if you know you are going to punished only with fines, you can take that into account for profits. If you will be fined $1000 for each person you kill with your product, but you make $100k per person, and the probability of killing someone is 1%... this is a good gamble, and you'll make lots of money. This is more or less what happens now.

Shifting responsibility to the companies to regulate themselves under threat of criminal punishment does a couple things. First, there is an enormous incentive to protect the safety of your customers... it's one thing when a customer is a number, another when you could wind up in a very unpleasant prison for life. Second, you don't have to be a millionaire to afford the court case against the company... it's prosecuted as a criminal matter, so the victims don't have to pay. Finally, you can eliminate the incentives for people to do stupid things in the hopes of suing a company (oh, this coffee is hot?) or (I got ran over walking with my GPS...).

Anyways, these are not positions of Paul's that I know of... but I have thought a lot on this, and this just an example of a way that a lack of regulations could work. The cost of harming someone has to be extremely high... and people will behave Same with the cost of polluting has to be high, and this is the position of Paul. "If I get a speck of pollution on my property... I'm going to sue the coal plant 50 miles down the road for destruction of my property"... so taking care of the environment is something you have to do to remain profitable. Right now, you get exemptions based on what politician you pay for.

 

[doctorfunk]

Given the USDA's track record, they aren't doing that great of a job of keeping consumers safe. But you make it sound like there would be no consumer safety without those federal agencies.

Businesses do well if consumers keep coming back to buy their products. A sick or dead customer is more than a single lost sale.

Doug Wead has a good writeup on the FDA:

http://dougwead.wordpress.com/2011/08/12/ron-paul-and-the-fda/

But to summarize, Costco wanted to keep their customers safe by testing the meat, but the FDA, which hired Tyson's Food employees, approved Tyson's meat with their regulations. Tyson said they would not sell to Costco if Costco tested the meat. Is the FDA keeping us safe or is it helping Tyson sell meat?

In it's current state, the FDA does more to protect business interests than consumers. But that doesn't mean that there should be no regulations either. And you really think that companies will all of a sudden start to think about consumer safety more than is required? Look at how many companies release knowly unsafe products because then can make enough profit to cover lawsuits or anticipated consumer dissatisfaction. I think some regulations are definatly necessary, especially in areas like finance.

 

[doctorfunk]

Are regulations really required for safety? Look at any disaster that affects a company... the airlines in the EU after the Iceland volcano eruption... Japanese reactor... the regulations all go out the window in the name of the economy. The airlines were warned by engineers that flying was unsafe... but it was a political or economic decision (i.e. one bought and paid for). Look at Pfizer... do you really think they care about your safety? The FDA was supposed to shut them down, and did not because they are too big to fail. Check this out: http://articles.cnn.com/2010-04-02/health/pfizer.bextra_1_bextra-pfizer-and-pharmacia-generic-drugs?_s=PM:HEALTH

If you want people to be more safe... you create an environment in which safety issues are a criminal matter. The person who made the decision to put people into danger are charged criminally. The executive who thought bonuses are more important goes to jail. Right now, if you know you are going to punished only with fines, you can take that into account for profits. If you will be fined $1000 for each person you kill with your product, but you make $100k per person, and the probability of killing someone is 1%... this is a good gamble, and you'll make lots of money. This is more or less what happens now.

Shifting responsibility to the companies to regulate themselves under threat of criminal punishment does a couple things. First, there is an enormous incentive to protect the safety of your customers... it's one thing when a customer is a number, another when you could wind up in a very unpleasant prison for life. Second, you don't have to be a millionaire to afford the court case against the company... it's prosecuted as a criminal matter, so the victims don't have to pay. Finally, you can eliminate the incentives for people to do stupid things in the hopes of suing a company (oh, this coffee is hot?) or (I got ran over walking with my GPS...).

Anyways, these are not positions of Paul's that I know of... but I have thought a lot on this, and this just an example of a way that a lack of regulations could work. The cost of harming someone has to be extremely high... and people will behave Same with the cost of polluting has to be high, and this is the position of Paul. "If I get a speck of pollution on my property... I'm going to sue the coal plant 50 miles down the road for destruction of my property"... so taking care of the environment is something you have to do to remain profitable. Right now, you get exemptions based on what politician you pay for.

All you're doing is changing the wording. Regulations and laws are in effect the same (see below), but I do like shifting the punishment to prison or at the very least fines that companies/individuals really fear.

You could argue that laws are more concerned with what and regulations are concerned with how, but there's no reason you couldn't write higher level regulations.

 

[Cabal]

I think it is the job of the government to prevent monopolies and crony capitalism.

This is an odd position to take. Austrian economics teaches us that, for starters, there are only two types of monopolies: coercive monopolies and efficiency monopolies. Coercive monopolies occur exclusively because of State intervention into the market. Efficiency monopolies occur when a particular company operates at such a high level of efficiency that they corner the market--these are few, far between, and very short-lived if they do occur. Secondly, crony capitalism is also an exclusive result of State intervention into the market--see coercive monopolies. So your contention that the government is to prevent coercive monopolies and crony capitalism is rather nonsensical, tbh.

 

[harikaried]

And you really think that companies will all of a sudden start to think about consumer safety more than is required?

Required by whom? You make it sound like if there's no federal safety level, everything will explode in your face.

Consumers will exchange money for products at a price for an amount of safety that they require for themselves, their kids, etc.

If I want to buy a car that doesn't fall apart, has air bags, all wheel drive, traction for snow mountain climbing.. Those are my requirements for safety. Someone wanting to buy a car for an occasional trip to the grocery in fair weather flat land might have other requirements for safety.

But consumers don't even need to be actively thinking about all the safety and risks just like that example of Costco wanting to do additional tests to sell safe meat. Stores like Target want their customers coming back to buy good quality toys and clothes. Car dealerships want customers to recommend them to their friends. These sellers do the heavy lifting to making sure the things they sell are safe to grow their customer base.

 

[The Free Hornet]

I've put a lot of thought into this topic and I'd like to hear what you think about it. How does the US government encourage competition in business without unnecessary and burdensome regulations on estabalished companies? How should they limit barriers to entry but limit the impact on large companies?

Eliminate the patent system. Scrap the whole damned thing. Make the barrier to getting a patent so damn high you practically need to invent faster-than-light travel or something. Alternatively, make it reward only or mandate licensing based on the economic value of the patents (if the government grants a patent, they ought to be able to set its maximum worth). If you think your patent is worth $20 but my product sells for $2, you ought not able to stop me from selling but limited to some small fraction of the sale price. No prior restraint on the sale of products due to patent issues. Eliminate software and business-method patents. They are pure nonsense. Limit patents to 7 years.

Scale copyrights back to lengths like 14 years or - as others have suggested - have a fee schedule that doubles every year ($1, $2, $4, $8, $16, $32, $64 year 7, $128, $256, $512, $1024, $2048, $4096, $8192 year 14, $16384, $32768, $65536, $131072, $262144, $524288, $1048576 year 21). Have the base amount indexed to gold/silver price or a CPI.

Broadcast frequency licenses should not be in perpetuity. At the same time, the value of those is decreasing and could be made nearly zero if the government got out of blocking communications. A tap is a block. If I can't speak with you without recording the conversation and keeping it accessible for Uncle Sam without a warrent, then my communication has been impeded by unreasonable costs.

The impact to large companies would be large. They have set the rules to their advantage so this is how it should be.

 

[tttppp]

I've put a lot of thought into this topic and I'd like to hear what you think about it. How does the US government encourage competition in business without unnecessary and burdensome regulations on estabalished companies? How should they limit barriers to entry but limit the impact on large companies?

I think it is the job of the government to prevent monopolies and crony capitalism. I don't think any company should be too big to fail. But how do you create regulations that don't punish the sucessful? Take manufacturing for example: new companies are seriously disadvantaged because they cannot receive the same benefits of scale that a large company can. In addition to the startup costs (often highly inflated by gov regulations), they cannot negotiate as well with suppliers or artificially set higher prices like an industry giant can.

I think to really get the economy growing again, we need more smaller and more agile companies that can adapt to change better, but given the current landscape it's very hard for new businesses to make it. The deck is highly stacked against them, some of which by natural consequences of capitalism and some by artifical means. Is there a way to unstack the deck without unjustly punishing others?

I think some of the problem is the way the government allowed some of these companies to grow. Mergers and acquisitions are a part of business, but when large players merge it raises the barrier to entry. Deregulation may be of benefit, but I think that it would just increase profits for the large companies.

Thoughts?

Eliminate pretty much all regulations and place it with my system. Instead of creating rules for how companies are to operate, grade the results of each companies operations and have their tax rates contingent upon how good their rate is. For example, if a company gets a perfect score, they pay no taxes. Say for example, companies like McDonalds and the cigarette manufacturers who cause cancer for millions because of their product, they would pay out almost all their earnings to tax because they would get a low grade. This system motivates companies to act in the best interest of society. If they do everything right, they pay no taxes. If they screw people over, they pay almost everything to taxes.

 

[The Gold Standard]

The government should encourage nothing, punish nothing, and regulate nothing. That would create all of the economic competition you could ever want.

 

[doctorfunk]

Required by whom? You make it sound like if there's no federal safety level, everything will explode in your face.

Consumers will exchange money for products at a price for an amount of safety that they require for themselves, their kids, etc.

If I want to buy a car that doesn't fall apart, has air bags, all wheel drive, traction for snow mountain climbing.. Those are my requirements for safety. Someone wanting to buy a car for an occasional trip to the grocery in fair weather flat land might have other requirements for safety.

But consumers don't even need to be actively thinking about all the safety and risks just like that example of Costco wanting to do additional tests to sell safe meat. Stores like Target want their customers coming back to buy good quality toys and clothes. Car dealerships want customers to recommend them to their friends. These sellers do the heavy lifting to making sure the things they sell are safe to grow their customer base.

So it's the consumer's fault for buying a Ford Pinto or toys that contain lead paint? And you're saying consumer's will always pay more for personal and environmental safety? I hear people talk all the time about how terrible Wal Mart is, but I also see them shop there.

 

[doctorfunk]

Eliminate the patent system. Scrap the whole damned thing. Make the barrier to getting a patent so damn high you practically need to invent faster-than-light travel or something. Alternatively, make it reward only or mandate licensing based on the economic value of the patents (if the government grants a patent, they ought to be able to set its maximum worth). If you think your patent is worth $20 but my product sells for $2, you ought not able to stop me from selling but limited to some small fraction of the sale price. No prior restraint on the sale of products due to patent issues. Eliminate software and business-method patents. They are pure nonsense. Limit patents to 7 years.

Scale copyrights back to lengths like 14 years or - as others have suggested - have a fee schedule that doubles every year ($1, $2, $4, $8, $16, $32, $64 year 7, $128, $256, $512, $1024, $2048, $4096, $8192 year 14, $16384, $32768, $65536, $131072, $262144, $524288, $1048576 year 21). Have the base amount indexed to gold/silver price or a CPI.

Broadcast frequency licenses should not be in perpetuity. At the same time, the value of those is decreasing and could be made nearly zero if the government got out of blocking communications. A tap is a block. If I can't speak with you without recording the conversation and keeping it accessible for Uncle Sam without a warrent, then my communication has been impeded by unreasonable costs.

The impact to large companies would be large. They have set the rules to their advantage so this is how it should be.

In my opinion the biggest problem with the patent system is the ability to file really broad patents or hold onto patents that are not going to be used at all. Patents are necessary for large scale investment into R&D. I also dislike the ability to keep patenting very small changes to existing products to extend the life of the patent. Raise the bar for what's considered new, raise the bar for specifics, and leave most of the rest of it alone. Copyrights are pretty much fine in my opinion.