Topic: Regulatory Studies

The Sleazy Combination of Big Business and Big Government

There’s an article today in the Wall Street Journal showing how already-established companies and their union allies will use the coercive power of government to thwart competition. The article specifically discusses efforts by less competitive supermarkets to block new Wal-Mart stores. Not that Wal-Mart can complain too vociferously. After all, this is the company that endorsed a key provision of Obamacare in hopes its hurting lower-cost competitors. The moral of the story is that whenever big business and big government get in bed together, you can be sure the outcome almost always is bad for taxpayers and consumers.

A grocery chain with nine stores in the area had hired Saint Consulting Group to secretly run the antidevelopment campaign. Saint is a specialist at fighting proposed Wal-Marts, and it uses tactics it describes as “black arts.” As Wal-Mart Stores Inc. has grown into the largest grocery seller in the U.S., similar battles have played out in hundreds of towns like Mundelein. Local activists and union groups have been the public face of much of the resistance. But in scores of cases, large supermarket chains including Supervalu Inc., Safeway Inc. and Ahold NV have retained Saint Consulting to block Wal-Mart, according to hundreds of pages of Saint documents reviewed by The Wall Street Journal and interviews with former employees. …Supermarkets that have funded campaigns to stop Wal-Mart are concerned about having to match the retailing giant’s low prices lest they lose market share. …In many cases, the pitched battles have more than doubled the amount of time it takes Wal-Mart to open a store, says a person close to the company. … For the typical anti-Wal-Mart assignment, a Saint manager will drop into town using an assumed name to create or take control of local opposition, according to former Saint employees. They flood local politicians with calls, using multiple phones to make it appear that the calls are coming from different people, the former employees say. …Former Saint workers say the union sometimes pays a portion of Saint’s fees. “The work we’ve funded Saint to do to preserve our market share and our jobs is within our First Amendment rights,” says Jill Cashen, spokeswoman for the United Food and Commercial Workers Union. Safeway declined to comment. …Mr. Saint says there is nothing illegal about a company trying to derail a competitor’s project. Companies have legal protection under the First Amendment for using a government or legal process to thwart competition, even if they do so secretly, he says.

Heckuva Job on the Auto Bailout, Rattie

Puffing out his chest in Tuesday’s Washington Post, Steven Rattner, former-head of President Obama’s auto task force and architect of GM’s and Chrysler’s restructurings, asks, rhetorically: “Isn’t it time to agree that the auto rescue has been a success?”

Rattner’s declaration of “Mission Accomplished”—based on one calendar quarter of mediocre financial results—is a galling display of arrogance and deception, and betrays a disturbing cluelessness about the broader costs and consequences of the government’s heavy-handed intervention.

Rattner’s verdict rests on the singular consideration that “a year after the government-sponsored bankruptcies of GM and Chrysler, both patients are alive and progressing well toward recovery.” But that’s like hailing the stable medical condition of a drunk driver after an accident, while ignoring the injuries to the family in the vehicle he struck.

The impact of the auto intervention on its victims doesn’t factor into Rattner’s analysis.

Rattner’s claim of auto “rescue” success is the product of a straw-man set-up. The most compelling objections to the bailout were not rooted in the belief that the government couldn’t use its assumed power to help GM and Chrysler.  On the contrary, the most compelling objections were over concerns that the government would do just that.  It is the consequences of that intervention—the undermining of the rule of law, the confiscations, the politically-driven decisions, and the distortion of market signals—that animated the most serious objections.

Thus, any verdict on the outcome of the auto industry intervention must take into account, among other things, the billions of dollars in property confiscated from the auto companies’ debt-holders; the higher risk premium built into U.S. corporate debt, as a result; the costs of denying Ford and the other more successful auto producers the spoils of competition (including additional market share and access to the resources misallocated at GM and Chrysler); the costs of rewarding irresponsible actors, like the United Autoworkers union, by insulating them from the outcomes of what should have been an apolitical bankruptcy proceeding; the effects of GM’s nationalization on production, investment, and public policy decisions; the diminution of U.S. moral authority to counsel foreign governments against market interventions that can adversely affect U.S. businesses competing abroad, and; the corrosive impact on America’s institutions of the illegal diversion of TARP funds under two presidential administrations.

In the Washington Post analysis that leads to his pronouncement of success, Rattner considers none of those costs.

Instead, citing GM’s positive first quarter 2010 financial results, higher prices, smaller inventories, and a reduction in the use of rebates and other sales incentives, Rattner attributes the company’s success to the efforts of his task force, which oversaw the establishment of a new board of directors and reduced GM’s North American operating costs by $8 billion.

Indeed it may tempting for Rattner to take credit for GM’s first quarterly profit in nearly three years, but the truth is that cost reductions and the appointment of a new board of directors would have happened under a normal Chapter 11 reorganization (without the task force) anyway.  Likewise, economic recovery would have increased demand for and prices of GM vehicles—even without the guiding wisdom of Rattner’s task force.

Despite claiming success, Rattner recognizes that making taxpayers whole for their $81 billion investment in the auto indutry would help sell his version of history.  He even hints that it may soon be in the cards.  But even under the extremely unlikely condition that taxpayers get all of their money back, there are still the more difficult to quantify short- and long-term economic and institutional costs of the intervention that should counsel against ever doing something like this again.

Remember, the FCC Is Our National Censor II

Last week, I referred obscurely to “folks wanting to install the FCC as the Internet’s regulator,” cautioning that this same Federal Communications Commission is our national censor.

A friendly correspondent points me to an article in Ars Technica about the demand for speech controls coming from the same groups that want the FCC to control the Internet’s infrastructure, groups such as Free Press, the Media Access Project, and Common Cause.

Is there a parry to the charge that this is a demand for censorship? The signatories to the regulatory filing “respectfully request[] that the FCC … inquire into the extent and effects of hate speech in media, and explore possible non-regulatory ways to counteract its negative impacts.”

The filing does not contain the words “First Amendment” or “free speech.” It means “non-regulatory” the way a cop eyeballing someone and slapping his palm with a billy club is “non-regulatory.”

The FCC is experienced with “non-regulatory” coercion. Hearings in Congress have explored how the agency uses arm-twisting to get what it wants outside of formal regulatory processes. As law professor Lars Noah testified in 1999:

Arm twisting refers to an agency’s use of threats either to impose a sanction or withhold a benefit in hopes of encouraging nominally voluntary compliance with a request that the agency could not impose directly on a regulated entity. This informal method of regulation often saddles parties with more onerous regulatory burdens than Congress had authorized, accompanied by a diminished opportunity to pursue judicial challenges.

An FCC with the power to regulate Internet access services would use it to control Internet content.  There’s no place for the FCC in monitoring or administering speech controls, nor in controlling our communications infrastructure, the Internet.

Goodbye to Locally Processed Meats?

The Atlantic has posted (h/t Future of Capitalism) an article by Virginia artisanal meat provider Joe Cloud sounding the alarm about how as regulation intensifies, only producers with the scale and sophistication to deal with it will be left standing:

Although species go extinct on Earth on a regular basis, every so often there is a major event that comes along and wipes out 40 or 50 percent of them. The same thing happens in the small business world. A few businesses fold every year due to retirement, poor management, and changes in the market, and that is quite normal. But then every so often a catastrophe comes along and causes a wholesale wipeout.

For small meat businesses in America, catastrophic events result from changes high up in the regulatory food chain that make it very difficult for small plants to adapt. The most recent extinction event occurred at the turn of the millennium, when small and very small USDA-inspected slaughter and processing plants were required to adopt the costly Hazard Analysis and Critical Control Point (HACCP) food safety plan. It has been estimated that 20 percent of existing small plants, and perhaps more, went out of business at that time. Now, proposed changes to HACCP for small and very small USDA-inspected plants threaten to take down many of the ones that remain, making healthy, local meats a rare commodity.

I’ve been following this particular controversy for a while, and perhaps its most depressing aspect is how very typical the pattern is. In 2008, following demands that it do something about much-publicized Chinese toy recalls, Congress passed the Consumer Product Safety Improvement Act, which devastated many hundreds of smaller manufacturers, importers and retailers of children’s clothing and playthings while leaving relatively unscathed Mattel, Hasbro, and the biggest discount retailers (all of which had in fact supported passage of the law). More recently, major food and agribusiness firms have signed on to support a major new round of federal food safety regulation despite warnings that it could pose big compliance challenges for many local bakers, fruit-baggers, and other small providers whether or not their products pose any notable risks.

I generally share many of the views of the “locavore” movement regarding the value of distinctive local food cultures and the importance to kids and cooks of getting a more direct sense where food comes from. Trouble is, some of us who imagine ourselves friendly to locavore thinking reflexively support whatever regulatory proposals are billed as most stringent and thus most protective. By the time we realize the choices we have lost, it can be too late.

Regulatory Spending Actually Rose under Bush

Analysts across the ideological spectrum generally agree that the government’s regulatory bodies fail far too frequently. However, analysts seem to learn different lessons from this experience.

Washington Post business columnist Steve Pearlstein cites numerous examples of failure and concludes, “It’s time for the business community to give up its jihad against regulation.”

He says:

It hardly captures the breadth and depth of these regulatory failures to say that during the Bush administration the pendulum swung a bit too far in the direction of deregulation and lax enforcement. What it misses is just how dramatically the regulatory agencies have been shrunken in size, stripped of talent and resources, demoralized by lousy leadership, captured by the industries they were meant to oversee and undermined by political interference and relentless attacks on their competence and purpose.

It’s true that regulators often do the bidding of the industries that they regulate. But “regulatory capture” is a long recognized phenomenon that undermines the contention that the government is well-suited to be a watchdog.

Regardless, is Pearlstein right that federal regulatory agencies were “dramatically” shrunk? Not according to a new study from George Washington University and Washington University in St. Louis. The figure shows that regulatory spending actually rose an inflation-adjusted 31 percent during the Bush administration (FY2002-FY2009):

Similarly, regulatory staff jumped by 42 percent under Bush’s watch:

$288/Month for an Upper East Side Studio

“Rent Control Is a Vanishing New York Treasure,” proclaims the headline over a New York Times story. Like Josh Blackman, I think “treasure” isn’t the right word here: “anachronism”, “disgrace” and “abject policy calamity” are more like it.

P.S. The Times article sympathetically depicts a Gotham tenant who pays the legally dictated rent of $288 to live in one of the nation’s most desirable neighborhoods. You guessed it: he feels put upon in that situation, believes his landlord should be doing much more to spruce up the place, and has teamed up with Manhattan State Sen. Liz Krueger to pursue his fight.

Rand Paul and the ADA

Along with the rest, the Kentucky Senate candidate has come under fire for expressing some guarded criticism of the Americans with Disabilities Act in broadcast interviews. In particular, opponents have blasted Paul for getting some details about the law wrong in his off-the-cuff hypothetical example:

Let’s say you have a local office and you have a two story office and one of your workers is handicapped. Should you not be allowed maybe to offer them an office on the first floor, or should you be forced to put in a hundred thousand dollar elevator?

In fact ADA regulations specify that elevators will not be mandated for private buildings of “less than three stories” unless used for shopping, health care, or some other purposes. This leads Jed Lewison of Daily Kos, with the generosity of spirit toward opponents for which that site is known, to rant: “What an idiot… He has no idea what [the federal government] does. He’s like a toddler freaking out about monsters under the bed.” Right. Doesn’t everyone who gets asked about their position on the ADA on national TV know that the elevator cutoff begins at three stories, not two?

Associated Press reporter John Cook has followed up with a “Newsroom” blog entry pursuing the gotcha theme, and quotes me in the course of doing so. Since I might not have made myself sufficiently clear on the phone with Cook, let me try to have another go at it here.

Does the ADA ever mandate that a business install elevators in its three-story building? Yes, often it does, but typically not through its employment provisions, which, as federal guidance has made clear, seldom if ever require installation of an elevator as the requested “reasonable accommodation” for an individual worker. The other main branch of the ADA relevant here is the law’s architectural rules, which do not hinge on any calculation of reasonable accommodation to individual workers/users. Under these rules, so long as the owner of an older building leaves it alone without restoration, only “readily achievable” changes will be required, which will ordinarily not include elevator installation. Cook quotes spokespeople for the EEOC and DOJ who correctly deny – note the narrow wording, which may escape many readers – that elevators are required under the “reasonable accommodation” standard. And he quotes a court decision – again note the narrow ground – that elevator installation is not required under the “readily achievable” standard.

But where the rules on major improvements like elevators get their teeth – as some of Cook’s sources must surely be aware – is not from either of those standards, but from the rules that apply to new construction and, crucially, renovations of older spaces. Renovation, when not minor, triggers a requirement to bring the space up to broad ADA standards. This can easily result in elevators and other budget-busting outlays for the immediate benefit of perhaps a single employee or perhaps of no employees at all, since the requirements apply whether or not any disabled person has ever sought access to the space.

Next time federal agency spokespeople are asked about elevator mandates, I hope they address the renovation trigger rather than other, less relevant sections of the law. They might even want to check their own website (South Dakota restaurant owner “agreed to install an elevator” following complaint to the feds) or, amusingly, the Daily Kos site itself (contributor: “I was laid off from my job last November because the company I was working for was forced to install an elevator in their new building.”)

As I told Cook, I think it’s pretty common for Senators (let alone non-incumbent candidates) to display confusion about which provision does what in a complicated law. Last year Arkansas Senator Mark Pryor, defending the Consumer Product Safety Improvement Act of 2008 – a law he was himself instrumental in passing – claimed that “the law allows the CPSC to make ‘commonsense exceptions’ to anti-lead requirements.” It doesn’t, but the remark passed almost unnoticed since no gotcha narrative was running at the time.

If candidate Paul is looking for non-hypothetical examples of curious and untoward ADA applications, he might start here and here (restaurants), here (rugged hiking lodge), here (PDF, see p. 7 – resort accessible only on skis), or, on employment topics, here, here, or here. And thanks to Ira Stoll at Future of Capitalism, who cites my writing in responding to another critic of Paul, former Bush speechwriter Michael Gerson, who disputably appears to regard the ADA as among “the largest moral achievements of recent American history.”