Guest Post: The Perfection Of Crony Capitalism: Use Regulation To Destroy Competitors

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

The Perfection Of Crony Capitalism: Use Regulation To Destroy Competitors

Crony capitalism uses its wealth to impose government regulations designed to hinder, cripple and destroy small business competitors.

In the U.S. we now have the perfection of cloaked crony capitalism: corporate cartels use their vast concentrations of capital and revenue to buy the political leverage needed to write regulations specifically designed to eliminate competition.

Recall that the most profitable business model is a monopoly or cartel protected from competition by the coercive Central State. Imposing complex regulations on small business competitors effectively cripples an entire class competitors, but does so in "stealth mode"--after all, more regulations are a "good thing" (especially to credulous Liberals) which "protect the public" (and every politico loves claiming his/her new raft of regulations will "protect the public.")

This masks the key dynamic of crony capitalism: gaming the government is the most profitable business model. Where else can you "invest" a few hundred thousand dollars (to buy political "access" and lobbying) and "earn" a return in the millions of dollars, and eliminate potential competitors, too? No other "investment" even comes close.

The ever-expanding galaxy of regulations that business owners have to meet is a function of the corruption of government, i.e. corporations lobbying the government to pass laws and regulations (usually written by industry lobbyists to the specifications of their clients) specifically designed to eliminate competition by raising the costs of compliance amd imposing heavy fines via enforcement.

As an example, let's take a slice of American mythology, the family farm, that is under increasing pressure from just this sort of Corporate-State crony capitalism. Consider the family-owned small to medium size farmer who understands that the farm is a nature-based system that requires certain practices to maintain the health of the farm and the quality of your produce/meat/milk.

Suddenly a number of corporate agribusiness farms (i.e. concentrated animal feeding operations--CAFO) spring up nearby where thousands of pigs/cows are crammed into huge barns and the operation is run like a factory, enabling the CAFO to produce meat or milk at a significantly cheaper cost or production.

What's left out of the equation is the pollution to the environment and any associated health costs and damages to the values of the neighboring properties (Of course, these CAFOs are never sited near an affluent neighborhood).

In addition, the quality of the meat is suspect, as all the potential disease outbreaks that come with monoculture practices and crowded conditions can only be suppressed with constant, massive quantities of antibiotics. This is the perfect condition--animals packed together, plentiful manure, constant use of antibiotics--to create super-bugs that are resistant to antibiotics. Life being what it is, opportunistic and adaptive, eventually these resistant bacteria find a new and unprotected host, human beings.

A small family farm cannot duplicate these risk factors; only CAFOs can generate this kind of bacteriological danger to the populace.

These kinds of systemic costs created by the CAFOs are transferred to the taxpayer, including the local farmer who has to compete with the CAFO.

Since government in the U.S. is always for sale, and since the revolving door between the legislative and regulatory agencies and the lobbying industry is always spinning, it's straightforward to hire "the right people" and "express your concerns" to the corrupt politicos.

Here are some examples of the crony-capitalist favors corporate lobbying and campaign contributions can buy:

1) The government may give massive direct subsidies to the CAFO, depending how effective the "farm" lobby is (most farm subsidies go to large agribusinesses and not to small farmers).

2) The government will pass regulations that apply to the farmer's operations but require an entire new layer of compliance, reporting etc. that is beyond the financial capability of small operations.

3) The government may initiate enforcement actions against the farmer for non-compliance and if he's not rich, he will get steamrolled by the government regulators because he can't hire adequate legal representation.

4) The government often will not penalize the CAFO on the same relative basis, if it is part of a large corporation which have the resources to fight the government in the courts (i.e. the enforcement personnel don't have the necessary resources to do long protracted battles with Panzer divisions of corporate lawyers);

5) When there's an incident of blatant government over-reach or corporate favoritism that gets press coverage, the government agency will say they will "revamp the system" which is a code-phrase for passing even more regulations that secures them even more power.

In other cases, the regulatory agency was hampered from doing its job due to corruption/lobbying/political pressure from powerful corporate players.

As the regulatory thicket expands in complexity and scope, many of the regulations will not be adequately enforced because enforcement is now beyond the capability of the agency tasked with enforcement and monitoring. But the small/medium farmer will have to comply with them anyway, and if they don't, then that leaves a door open for corporate-directed regulators to take them down later with heavy fines for non-compliance.

6) The government gets complaint tips from a CAFO about the independent farmer, so he's subjected to a rigorous compliance inspection, whether or not the complaint is legitimate. It's like the vehicle inspections you get if you're caught "driving while black"-- with enough effort, some violation somewhere can be trumped up into a fat fine.

7) The regulations become so complex that prosecutors are reluctant to bring then to court because they're worried that a jury may not understand them. As a result, criminal cases are rarely brought against CAFOs and other corporate cartels.

After a few cycles of crony capitalism, competition has been destroyed, and you end up with something like America's "sickcare" system: no matter where you go, there's only two health insurance providers and their pricing is (surprise!) always about the same (it's called price fixing; that's the way cartels work).

Regulations don't arise unbidden; they arise to accomplish two tasks:

1. Enforce crony capitalism by eliminating or crippling competitors and establishing highly profitable cartels or quasi-monopolies protected by a bought-and-paid-for Central State.

2. They justify the budgets and payrolls of government agencies at all levels of government. A few years ago I mentioned a town that was trying to add a commuter train stop to an existing rail line. The process involved something like nine agencies, and as a result it has yet to be approved, a decade later. But the application did create a decade of justification-for-our-budget for agencies that might have been revealed as wasteful friction without the make-work application to diddle over for a decade.

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tmosley's picture

Pretty sure that was ALWAYS the goal of regulation.  It certainly has been for my entire life.

bdc63's picture

agreed.  ain't noth'in new about this.

kridkrid's picture

Nothing new, but most don't recognize it.  Years of both subtle and not-so-subtle indoctrination and propaganda.  On the whole, it's fairly impressive. 

Gully Foyle's picture

kridkrid

Most still don't recognize it or care.

It has nothing to do with indoctrination. The majority of people are merely disinterested.

No big shady conspiracies here.

Never put down to conspiracy anything that can be explained by sheer sloth.

greyghost's picture

good point...am tired of trying to educate anyone anymore...just to painful and exhuasting. i look after my girls and their families..and yes they listen.

Gully Foyle's picture

greyghost

Yep.

Much easier to accept people as they are.

Maybe less than one percent really get the point whatever that may be. They would be the ones naturally aware and attuned.


Xkwisetly Paneful's picture

it takes 65 days to get a permit to open a lemonade stand in NYC,

it takes $1million in some US cities to get a license to run a taxi business,

The government is currently adding 80,000 pages of new rules and regulations a year.

 

Buckaroo Banzai's picture

...and its time to take another look at Ted Nace's masterwork on the corporate takeover of America, "Gangs of America":

http://www.gangsofamerica.com

CIABS's picture

http://en.wikipedia.org/wiki/Gabriel_Kolko

Kolko was one of the historians who figured out what the rise of regulation was about.

Herd Redirection Committee's picture

Check out the latest from the Capital Research Institute "Time To Break Up The Media Monopoly":

http://www.capitalresearchinstitute.org

So much of our problems exist because of the complete lack of a free press.  The education system teaches kids what to think, and then the media takes over telling you what to think for the rest of your blessed life.

Buckaroo Banzai's picture

Yeah, although his take is kind of dopey. He tries to shoehorn his analysis into his leftist viewpoint which creates some distortions in terminology. What he calls "political capitalism" really misuses the word capitalism. A more appropriate label would be "corporatism" which, when taken to its logical conclusion, becomes National Socialism or Fascism.

Real Estate Geek's picture

...and its time to take another look at Ted Nace's masterwork on the corporate takeover of America, "Gangs of America":

http://www.gangsofamerica.com

. . . which is available for free (PDF) there.

economics1996's picture

This shit has been around since Herbert Hoover in the 20s when the creeper was commerce secretary.  Useless men with no taleThis shit has been around since Herbert Hoover in the 20s when the creeper was commerce secretary.  Useless men with no talent trying to rip off other men with talent.

 

Before Hoover the Spanish regulated themselves out of a empire in the 16th century, and the Romans in the 5th.nt trying to rip off other men with talent.

ATM's picture

I might suggest that the Spanish and Romans debased their ways out of empire because they had spent their countries fortunes well into the future.

IMO the regulations were/are a by-product of government seeking to retain power in a collapsing system.

MachoMan's picture

This issue predates the Romans...  it is INHERENT in the process of effectuating self interest.  I know I have said this time and time again, but here goes another...

If the profits of any market normalize as competition gets closer and closer to perfect, then ALL RATIONAL ACTORS SEEK TO AVOID THE NORMALIZATION PROCESS.  That's what economics hasn't really dived into yet...  the degree and extent rational actors will go to in order to avoid the normalization of profits.  This can be through cannibalization..  but it can also be due to lobbying and bought and paid for regulation.  It will more likely be the latter, given other existing market participants aren't really interested in letting the others eat their limbs.

Of course it leads to regulatory entrenchment of the profit process...

There probably isn't a more obvious need for a safeguard/check and balance out there...  market principles have no known rival...  however, there must be rudimentary safeguards built into the system to ensure that the market forces do not usurp the process of governance...

I don't think most of our policy makers understand the systemic importance of their day to day decisions...

Vlad Tepid's picture

I'm intrigued by this.  Not being a finance guy and not having had my morning cup, would you mind explaining the normalization process?  What does it mean to "normalize" profits?

MachoMan's picture

normalization = zero.  The econ 101 speak is that as competition increases in a particular market (assuming a flat growth rate) that market participants end up slitting each others' throats.  When "perfect" competition exists, the market participants are producing for no profit...  having undercut each other to the point of normalization.  Presumably, consumers are benefitted by this competition and this is the rally cry of free market proponents (among other important factors).

What economics has a blind eye towards is that rational actors will do ANYTHING to avoid the normalization of profits...  and their preventative actions occur MUCH SOONER than when normalization would occur...  In the end, this boils down to primarily a consolidation of producers initially and then regulatory capture later, although these processes need not be in any particular order.  In other words, perfect competition is more or less an argument fit only for an academic vacuum.

mick_richfield's picture

I don't think they're disinterested.  My friends all want to believe in the wise and beneficent State. 

Like Roman soldiers wanted to believe in Mithras.

V in PA's picture

Agreed. Let's not mistake disinterested with fear. The fear of learning that you have been brainwashed and everything you thought was real is bullshit.

mick_richfield's picture

How about the fear that it's all up to you?  That there is no great wise entity somewhere who only wants what's good for you and has the power to make everything OK.

My statist friends mostly think that they are athiests -- but they're not.  They just believe in their religion so desperately that they think of it as reality.

kridkrid's picture

Freedomain Radio - http://www.freedomainradio.com/ - Interesting... thanks for linking that.

Cathartes Aura's picture

great points mick_

How about the fear that it's all up to you?  That there is no great wise entity somewhere who only wants what's good for you and has the power to make everything OK.

you mention atheist believers, and I think this way of thinking is perpetuated by the "top down" hierarchies we live under - that what or who ever is above us is their to protect us, like a "father"

"they" have used this myth since forever, building imaginary structures in our minds that no matter what, we are safe and protected, no need to pay attention to reality, that's for those who take care of us.

time to grow up, leave the nest, the fenced fields, time to acknowledge adulthood, and self-response-ability.

tell the truth.  no santa claus.

 

 

combatsnoopy's picture

then they believe that some politician will randomly fix the US economy.  This is where the US will fall behind the rest of the globe.  Now if I can only move away from the influence of the baby boomer voting majority...

Cathartes Aura's picture

you can, but you'll have to give up the structures they put in place for you.

kridkrid's picture

I appreciate your position, but disagree.  The lens through which people view the world is created for them.  The assumption that we need a benevolent government to protect us from X, Y or Z is a fabrication.  How may times, over the years, have you heard someone reference Standard Oil as "proof" that government works in our collective best interests.  That person knows nothing of the actual events... doesn't know, for example, that competition was driving prices down and reducing Standard Oil's market share for a decade ahead of the ruling.

I readily acknowledge that people are lazy, but the collective view of the world (indoctrination) allows people to be run roughshod over.  It's a critical piece (the critical piece, I think).

Cathartes Aura's picture

when parenting young children, one must set up rules to "keep them safe" - as they grow into teens and contest the rules, some parents can be vicious in enforcement, petty and childish even. . .

government by petty nuisances being paid to harass has outgrown its usefulness, like an aging tyrant parent.

time to get out of daddy-gov's basement. . .

JohnKozac's picture

 

 

'When it becomes serious, you have to lie.'

- Jean-Claude Juncker, Chairman of Eurozone Finance Ministers

Clark Bent's picture

Can't help but mention that the discrediting of anybody noting  collusion as a "conspiracy" nut is one of modern life's most common pieces of propaganda. The presumption (coming from where?) is that all apparently are supposed to know that any argument regarding collusion identifies one as the wearer of a tin-foil sombrero.  It's pretty simple, and requires no secret handshake to observe that people act collectively where their interests are in alignment. The government has a vested interest (for its members) to direct and advance policies that just incidentally happen to advance their own interests. Environmentalists get into the EPA because they are drinking the Kool Aid. It won't be too hard to convince them that everything is a threat to the environment. Likewise the legions of social workers are absolutely convinced that we need to have a war on drugs, poverty, ignorance, etc. that just incidentally happens to hire social workers of every stripe and enhance the status of those in the industry. The moral of this story is that it is a bad idea, given the observable nature of man, to put unchecked political power in the hands of people. They will predictably misuse it, and if not checked by competitors, will misuse it worse over time. Hence the stucture of our original government that understood the trick is limiting government as a positive good in its own right. Liberty is freedom from government. Freedom from coercive force.  

greyghost's picture

agreed, kridkrid...well hidden by noise about zoning...pollution....just look at your typical downtown and city leaders...no you can't open another hamburger joint we already have one {does it matter if the mayor already owns that one?} no more liquor stores...got one, no more hot dog stands...already got one. refreshing that hugh is talking about something other than peak oil...then again maybe we are only talking about peak hamburger stands.

mayhem_korner's picture

 

 

Yes, but what the slavemasters have really gotten good at is the wearing down of the intelligentia of the sheeple such that their now ultra-dubious sleight-of-hand efforts pass the smell test with ease.

DCFusor's picture

Don't even get me started on how the throughly broken patent/IP system allows the big boys to suppress all innovation by small guys.  They can afford to patent everything under the sun, and no matter how much prior art or how obvious - or just plain ridiculous, they fly through.  Then you invent your little thing, and nothing you can do will prevent them from coming after you with their huge portfolio of things it "violates".  They simply cross license this junk to one another - they fear us little disruptive guys than each other, mostly (but see the cel phone business of late).

It takes a couple million bucks and a couple years to get just one of these bogus patents declared invalid - such that even fairly big players are mostly afaid to fight off, say microsoft's secret NDA/license agreements for using android, for just one example.  Did you know microsoft makes more money off android via extortion- with they neither wrote nor inspired - than their own stuff?  The agreement they get people to sign enjoins them from even telling what bogus patents are involved or how much protection money they have to pay, but the SEC filings from MS show some info....B&N is at least fighting them - at enormous costs.

Seems our lawmakers have a sweet spot for lawyers.

Shizzmoney's picture

Seems our lawmakers have a sweet spot for lawyers.

Because most of them ARE lawyers.

Like, how the fuck did that dumb motherfucker Scott Brown pass a bar and become a lawyer?

MachoMan's picture

The bar isn't very hard...

(the cpa exam on the other hand...)

outofhere's picture

I've never passed a bar, it's always Miller time!  Been f*^#ed by many a lawyer though.

Price of being in business.

Buckaroo Banzai's picture

Stephan Kinsella makes a compelling case that patents and copyrights should be abolished. Unfortunately this would require an amendment to the Constitution.

http://mises.org/books/against.pdf

Gully Foyle's picture

mayhem_korner

"Yes, but what the slavemasters have really gotten good at is the wearing down of the intelligentia of the sheeple"

Really, you believe that shit?

Try this people are naturally lazy and disinterested. Others capitalize on that.

I just read this article by Teller.

He said

"1. Exploit pattern recognition. I magically produce four silver dollars, one at a time, with the back of my hand toward you. Then I allow you to see the palm of my hand empty before a fifth coin appears. As Homo sapiens, you grasp the pattern, and take away the impression that I produced all five coins from a hand whose palm was empty."

Any goddamned fool reading that can apply it to their own life, if they so choose. The majority don't, they choose not to be bothered. It's in their genes.

Yes some people actually profit from the weakness of the herd.

That's what life is about.

Xkwisetly Paneful's picture

A certain baseball player passed away of a heart attack recently, someone added to their wiki page that he had complained of excessive gas to his wife before dying.

Not only has this been picked up by dozens of journalists and recanted as fact in their articles about the player,

but there are now  blog posts around wondering if gas can lead to heart attacks.

and yet wiki is the modern day source for information.

weakness of the herd? I'll go with strength of the herd largely borne of the conformist era in the US where the imagination was decimated.

mayhem_korner's picture

The majority don't, they choose not to be bothered. It's in their genes.

 

Your point is well taken, and I think it could be debated endlessly - kind of a "nature v. nurture" issue.  But if you look at what is being "taught" in government school systems, you will be hard-pressed to believe that the sheep aren't being institutionalized right out of the womb.  It's sickening.

I think a big part of the problem is that the complex takes advantage of folks' trust.  By the time anyone gets a dose of reality, they are so far gone that they can't reconcile it with the 'truth' they were told about, the 'truth' they trusted the public schools to inform them of.

Cathartes Aura's picture

couldn't agree more - knowing who and what you trust, and why, is a mark of self-awareness, and the cornerstone of personal responsibility. . .

all along the way we make choices, careers, relationships, etc. - some things don't pan out, but teach us lessons on misplaced trust - it's a function of growing into self-awareness.

of course the system we are raised in would prefer you trust it / them - who benefits?

outofhere's picture

Newborns, not being able to leave the hospital sans a contract with the IMF (yes i went straight to the source) thru the SS administration IS being indoctrinated into the institution right out of the womb and they will receive no enlightenment for their tax dollars, just assaults to their right brain hemisphere and their GREAT-grandparents will be in their 50's.

Consciousness needs to raised now before it is to late.  Only psychopathy is genetic as seen in ANYONE who tries to control ANYTHING outside of their OWN BEING!

Good to hear from you again Brother Mayhem

(+100 Aura)

Cathartes Aura's picture

+100 back at you outofhere!

re-minding folks of the birth to death model of ownership currently in place highlights how something as natural as birth needs to be co-opted by the white coat pharma brigade, ostensibly for "healthy" reasons, but when enforced ceasarean sections for the convenience of the doctor's schedules are becoming the norm - one might question the reliance on hospital birth models when required SS registration is a part of the deal.  (oh and the "SS" label is noted)

"sign here please to receive your package"

outofhere's picture

"ownership"

 

Intriguing word!  When i was indoctrinated into the service of our country I had to get a copy of my birth certificate issued and sealed by the STATE.

The identifier to the right of my name was SUBJECT.  WTF 

Vlad Tepid's picture

Question for the Hedge:  I will be having a new kidlet coming my way soon, born in a foreign, developed, industrialized country.  The rest of my family already has dual citizenship in this country.  I'm seriously thinking about not even registering her birth with the US, since we'll be living in said country the rest of our days - me as an expat.  My (stateside) family would have a fit, but what thinks the Hedge?  Dual citizen or "other citizen?"

Real Estate Geek's picture

let the kid decide.  I believe she will have until age 18

Cathartes Aura's picture

Vlad, to use outofhere's words - I wouldn't SUBJECT a child of mine to being owned by any STATE - (intentional caps).

particularly *this* one, as it is proving to be a future bureaucratic hell. . .

ask yourself - what would be the benefits of CITIZEN-ship vs. the drawbacks.

best wishes.

AssFire's picture

The only power any government has is the power to crack down on criminals. Well, when there aren’t enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws.

Ayn Rand

They need only create a couple more regulations to take out Gibson guitar or other corporations who don't "play ball" (kickbacks).. the same tactics employed by our government's EHM around the world, but this is considered "legal" through plausible deniability. Right now Nike and other large lobbying foreign makers are pushing the EPA to create air quality laws that would cause the closure of New Balance, USSA's last sneaker mfg.

Reading Atlas Shrugged shows where it ends.. In England the wealthy are committing to reducing their incomes to contend with the outrageous tax burden put on them due to their government regulations that drove wealth producing jobs out in the first place.

blunderdog's picture

I would not assume that Frank Zappa and Ayn Rand shared too many opinions or sentiments, but the fact that Joe's Garage was an album where the premise is that the gummit sought to criminalize EVERYTHING makes the wisdom of that perspective very hard to question.

Gully Foyle's picture

Goddamnit! I knew there was a reason SOLYNDRA failed!

YOU BASTARDS KILLED SOLAR!

Apocalicious's picture

 

The more corrupt the republic, the more numerous the laws.  ~Tacitus, 14 AD.

 

Law never made men a whit more just; and, by means of their respect for it, even the well-disposed are daily made the agents of injustice. ~Henry David Thoreau, 1849