Government Regulations are The Problem?
Free Market Capitalism is the Answer?
Donald Trump has promised an aggressive attack on “unnecessary government regulation” claiming that it inhibits commerce and economic growth. His solution is the newly created Department Of Government Efficiency (DOGE). Led by Elon Musk and Vivek Ramaswamy, it’s mandate is to “slash government waste”. This effort is consistent with conservative dogma that believes free market capitalism with minimal government interference is the best path to prosperity for all.
Capitalism has proven to be a powerful force to generate prosperity and wealth. It releases an inexhaustible source of creative energy through individual innovation, fueled by the promise of independence and wealth. The fundamental tenets are simple:
Citizens are guaranteed ownership and control of their private property
Prices are determined by competition and the interaction of supply and demand in an unregulated marketplace
The theory is that sellers will compete by offering the lowest price or best quality and buyers will choose according to their needs. Sellers with the most desirable products will thrive, buyers will get the best possible price, and those who are unethical or who produce substandard or dangerous products will be penalized by the “invisible hand” of the free market.
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Adam Smith
But history and personal experience tells us that, in the real world, markets behave much differently. In the absence of any controls, free market capitalism can fail to deliver on it’s promise.
Monopoly
Competition is a fundamental tenet of capitalism, but if there is only one supplier for a product, or if multiple suppliers collude, prices can be dictated and consumers have no recourse but to pay.1
In 1887 the US government established the Interstate Commerce Commission to regulate the railroad industry which was accused of unfair trade practices and corruption. In 1890 the Sherman Antitrust Act was passed which outlawed anticompetitive agreements and attempts to monopolize markets.2
The Federal Trade Commission was established in 1911 after the break up of Standard Oil’s monopoly of the petroleum market. It was charged with regulating trade and consumer protection. But starting with the Reagan administration, anti-trust enforcement fell out of favor and enforcement declined.
Today many major industries in the US are dominated by a few large companies, giving them tremendous pricing power. Examples include airlines, grocery stores, drug stores, and more. During the Biden administration an executive order was issued to increase anti-trust enforcement in an effort to reverse the trend. Recent FTC anti-monopoly actions include
Amazon (price fixing)
Sanofi (drug pricing)
U.S. Anesthesia Partners (price fixing)
Epic Games vs Google (unfair trade practices)
Cigna/Humana merger (monopoly)
Kroger/Albertson’s merger (monopoly)
Fraud
Although it would seem illogical to run a company based on lies, fraud is ancient, commonplace, and profitable. In small communities where buyers and sellers interact regularly fraud is less likely to occur due to familiarity as the result of recurring transactions. But in large cities or online anonymity makes it more difficult to identify bad actors. From online scams targeting individuals to large scale operations like Enron, Worldcom, and Theranos fraud is commonplace today.
In 1938 The Federal Trade Commission’s mission was extended to regulate unfair or deceptive business practices, including false advertising. More recently, in 2010 the independent Consumer Financial Protection Bureau was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act to address the causes of the 2008 financial crisis.
As of the end of 2024 the CFPB has delivered $19.6B in direct consumer relief for 195 million consumers and $5B in civil money penalties.3
Worker’s Rights
Workers have very little power when selling their labor. In the early days of the industrial revolution factory workers routinely worked 12 hour shifts 6 days a week. Child labor was common, and workplace safety was rarely a consideration.
The most extreme version of this imbalance is slavery, which was justified as a necessity to produce valuable crops like tobacco and cotton.
“The principal product that will elevate us from poverty is cotton and we cannot do this without the help of slaves.” Stephen F. Austin
Today outright slavery isn’t an option, but many jobs pay less than a living wage. A Government Accountability Office analysis from October of 2020 determined that 70% of Medicaid and SNAP recipients in 11 states were working full time.4 By paying less than a living wage these employers are relying on taxpayer money to subsidize their cost of labor.
Worker safety is also an issue. An investigation by the Occupational Safety and Health Administration showed that in 2022 Amazon laborers were injured at a rate of 6.9 for every 100, significantly higher than the industry average. In January of 2023 OSHA cited Amazon for “failing to keep workers safe.”
Although labor unions can level the playing field for some, union membership has declined to historic lows following a reduction in federal support for unions starting in the Reagan administration, and anti-union legislation like so called “right to work'“ laws.
The Federal government’s earliest regulations on worker safety and compensation were enacted in response to horrific conditions during the early stages of the industrial revolution. A seminal event was the Triangle Shirtwaist factory fire5. Since then, Federal legislation intended to protect worker’s rights include the following.
Creation of the Department of Labor - 1913
National Labor Relations Act - 1935
Walsh-Healy Act - 1936
Fair Labor Standards Act - 1938 (minimum wage)
Occupational Safety and Health Act of 1970
Capitalism Requires Guardrails
It seems clear that capitalism and free markets don’t naturally deliver optimal outcomes. Both buyers and sellers can behave in ways that are counter to the greater good and even their own best interests. Although some regulations may be unnecessary or counter productive it’s clear from the examples above that if unrestrained, capitalism is unlikely to deliver on it’s promise of optimal outcomes.
Questions
Does the current corporate focus on maximizing shareholder value deliver optimal outcomes for both producers and consumers?
Which government regulations are unnecessarily inhibiting growth?
Is labor priced fairly by the free market?
Let me know what you think by leaving a comment.
As a bonus, here’s a short video by Robert Reich about how markets are created and regulated.
For example, in 2015 Turing Pharmaceuticals CEO Martin Shkreli bought exclusive marketing rights to the anti-parasitic drug Daraprim and raised the price from $13.50 to $750 per dose.
A 1993 Supreme Court Ruling stated that “The purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.”
Millions of Full-Time Workers Rely on Federal Health Care and Food Assistance Programs, Government Accountability Office
iMO I don't think there was one regulation put in place for no reason. They are put in place because there is abuse by companies that harm people. Historically corporations do not police themselves other than to increase profits at any cost.
As the owner of a small design/build company in Vermont who learned my trade working for others, I learned through my own experience how much better I worked for fair employers than the ones that were users who didn’t care. I also was able to gauge the success of employers who insisted on great quality at fair prices versus ones that skimped as much as they could get away with while charging as much as they could.
So, I did my best to foster a work environment for my employees that I can best describe as being family oriented and that provided opportunity to work happily to produce a product they could be proud of at decent wages with bonus opportunities on every project based on profit that gave each employee ownership of the outcome. Experienced employees and managers were expected to foster learning and respect down the line to enhance growth of the individual. If someone was unable to thrive in this environment and created an unpleasant environment for others, I seldom had to fire anyone as they usually left on their own. It was usually dissatisfaction of their own making.
The customers were kept informed and involved throughout their project starting with being included at every phase of the designing towards their stated budget including itemized estimating that showed both my costs and what I required for profit. By being very clear and upfront and willing to be flexible for changes initiated prior to necessitating dismantling of work already completed with no up charge unless my costs increased, the customer was also able to have ownership in the process.
To complete the overall satisfaction of both customer and employees, they were both invited to interact with each other personally which tended to foster warm feelings all around. Everyone had opportunity to thrive and have satisfaction.
Sound like utopia? I found that happiness and satisfaction brought loyalty from employee/partners who worked hard at doing their best and were rewarded for it. The happiness along with involvement in day to day decisions had a great effect on the customers who tended to love the process. I didn’t have to work hard at keeping everybody in line or worry that anybody was slacking.
Were there problems? Of course, but nothing like the problems I saw my peers coping with. With open book itemized estimating that showed true costs that anyone could check and showing my hoped for profit, customers who insisted on a better deal showed themselves as potential problems and were politely told they needed to find a builder who was a better match for them.
Did I preplan this out come? No, it developed on its own. It started with me learning what made me happy or unhappy while working for other companies. Then I started doing subcontract work with a small crew. As I became dissatisfied with being a subcontractor and wanting to be involved more in the total process, I started taking on small jobs with my own customers. Eventually, I was offered employment opportunities through architects in my area. That was fairly satisfying, except for the fact that I was expected to meet budgets created by the architects who sometimes designed phases of the job that were out of the ordinary. Sometimes you can draw something on paper that doesn’t come together very well in the three-dimensional world and architects sometimes tend to be on the artistic side and unable to design towards their customers budget and expected me to make up for it. So I in my practical way started looking for people who would let me design for them towards their budget and found I could be quite successful at it. Running an office was not my forte so my wife became the office manager. She and I together did the design work and worked with the customers. I did the estimating, she did the books. Since working with my hands was my love and what got me into this in the first place, I worked as foreman on the jobs where I worked with my crew the way I liked to be treated. It all came together organically and showed me a way to do business differently and more satisfactorily. I may not have made a fortune, but I couldn’t have asked for a better way of living and I did quite well financially. Unfortunately, I was steered into the corporate world by my wife who saw financial opportunity by getting involved in insurance work and we bought a franchise that changed my life and created a situation I had to separate myself from after six years of high stress drama.
I give you this story as a way to show that it may be possible to create equitable ways of doing business that are fair to both the customer and the employees. I would like to think that our government could make it possible to regulate in a way that makes this doable on a grander scale to some degree. Giving the upper hand to big business is not going to get us there. Big businesses doesn’t care about the little guy that does the work or giving up any of the profit they can suck out of the customer. Unregulated big businesses doesn’t care and takes from both ends as they even work to dodge giving back by way of taxes to the infrastructure that allows them to operate and trade worldwide. Big businesses should not be able to enrich themselves on the backs of the people that make it possible without making it worthwhile to their workers and their customers. All take with no give has led us to where we are today.