Bryan Caplan  

Big Business and Regulatory Double Standards

PRINT
By Request: Monetarism and th... Mandela and the Communists...
Robin Hanson points out yet another way that, contra left-libertarians, big business faces exceptionally and unreasonably harsh regulation:

Many of our regulations apply to big firms more strongly than small firms, and and even less to homes. For example, many regulations apply only to firms with more than a certain number of employees...

When I asked my enviro econ students to explain weaker home trash rules, some said firms care only for profit, while homes care about the environment, so homes don't need rules to do the right thing. Others said the opposite, that homes rebel more against strict rules, such as by tossing trash in the woods, while firms are more obedient.

Now it seems to me that bigger orgs are in fact easier to monitor and punish, which can justify stricter rules when such rules are harder to enforce...

But this is only part of the explanation. Firms obey trash rules in large part because we do random inspections of firm trash, yet would not tolerate random inspections of home trash. Big orgs are favorite movie villians, and people seem to demand higher wages to work for them. It seems we love to hate and distrust big orgs, relative to small orgs and individuals.

And this seems objectively unfair; big firms make it easier for us to monitor and discourage them from bad behavior, yet we reward this help by taxing them more, and imposing more burdens.
Of course, this doesn't mean that regulations are invariably tilted against big business.  My point, rather, is that many important regulations do discourage bigness, so the net effect of regulation on the size and number of firms is hard to unravel.  Careful empirical work might yield credible answers.  But the most basic level of care is to admit that there are heavy government hands on both sides of the scale.


Comments and Sharing





COMMENTS (12 to date)

After checking out Robins blog "Overcoming Bias" yesterday for the first time which I found on Finem Respice, to which you are also linked. "Overcoming Bias" seems mostly well informed. I was set aback when I encountered the post you are referencing. To me it seemed like the corporate apologistics you hear every day on television. Commenting there actually got me started on an essay. After thinking about it, I think Robin's Post was meant more as a parody than a serious piece. Since you seem more serious about what was implicated, I'll repeat the strongest point I made there.

Regulations are only rarely created out of whole cloth in anticipation of potential wrong doing. Regulations are almost exclusively enacted as remedies to problems that occur. Which should speak volumes to why in a scenario of big firms verses small firms creating hazardous waste, small firms have less regulation
Doc Merlin writes:

'Regulations are only rarely created out of whole cloth in anticipation of potential wrong doing. Regulations are almost exclusively enacted as remedies to problems that occur. Which should speak volumes to why in a scenario of big firms verses small firms creating hazardous waste, small firms have less regulation'

I disagree here entirely. I think its more that small firms serve as a much more powerful constituency (thats why they have cutouts for almost everything, including the latest health bill). Also, large firms want each other regulated. Due to economies of scale they don't really see the small firms as competitors, but see each other as such.

steve writes:

" My point, rather, is that many important regulations do discourage bigness, so the net effect of regulation on the size and number of firms is hard to unravel."

Wouldnt the very presence of so many large corporations answer that question. Look at their frequency in the US compared with other OECD countries.

Steve

Kurbla writes:

Economy of scale => profit of scale => externalities of scale => regulation of scale.

Doc Merlin writes:

@Kurbla:
'Economy of scale => profit of scale => externalities of scale => regulation of scale.'

I think you lose at economics.
1. Economies of scale don't always result in economic profits.
2. Profit doesn't mean externalities, and if they do they are not always negative ones. A lot of the externalities that come from economies of scale are positive externalities.
3. Regulation doesn't actually get rid of externalities.

Joe Cushing writes:

Some regulations seem equal but economies of scale make them not equal. It's why only companies of a certain size can go public now. Sarbanes Oxley prohibits smaller firms from doing so by way of expense.

Keith E writes:

It may be that many regulations affect large firms disproportionally, but it is also true that regulations have put many small businesses, out of business.

My father owns a farm. When I was a boy, we took a steer to the slaughter house every year. There were two family run slaughter houses within 10 miles of our farm. For the first time in many years, my father had a steer slaughtered this year (it was injured by coyotes when young and had little market value as a result). Today, the nearest slaughter house is about 60 miles away.

One might think that demand for small slaughter houses had simply gone down over the years, but this place runs with a 6 month backlog (waiting list) and was by no means cheap. Regulation can be a significant barrier to entry for many small businesses, and often the impact is that the business is simply not there.

Colin K writes:

Politicians are most sensitive to big effects, like firms shutting down, as opposed to very subtle things like reduced growth rates. Small firms often cannot tolerate a new regulatory burden, while large firms almost always can, at least in the short term.

Tom writes:

"Many of our regulations apply to big firms more strongly than small firms"

Made me think of survivor's bias.
How many small businesses have failed because of these regulations?

shfor writes:

Large firms deserve stricter regulations because they have a tendency to find the most inexpensive means of creating the largest profit. Hence, if they can get away with pollution to create the biggest profit and exceed the competition they will. Homes on the other hand have no reason to need those regulations because their goal is not to create a profit with their home. Lastly, most small firms operate making little to no profit in the first place. They realize they will never be able to compete with the large firms, so they should not be help to the same standards.
I have no sympathy for the large firms with the harsh regulations because they are notorious for finding the easiest means possible to complete their task. Large firms are not worried about the environment because they are self-concerned with the profits of their firm above all else. Most home owners try to do their part to help the environment by conserving energy, recycling, etc. There is no comparison between the two. Small firms are careful about obeying the laws as well because they are more likely to be more severely punished because there is one owner unlike the many shareholders and CEO’s of large firms.

Hyena writes:

But is this a result of specifically anti-size regulation or an attempt to scale penalties with offenses or conserve scarce enforcement resources?

I apologize for jumping off the subject which I glossed over in taking hammer and tong to Robin's piece. Excuses omitted.

You can probably tell that I have some what of a green tint.

The segment of the piece you were referring to dealt with the privacy of trash or the likelihood of small v. big firms having their trash inspected with the exclusive right of privacy of home owners to not have their trash inspected wedged in.

I will just point a finger at how only thinking in the short term to the point of nanoseconds is reflected in looking to do away with environmental regulation to increase profits as any sort of solution.

If the US hopes to export anything other than new ways to shove paper around we need to look at other countries business models. In this instance Japan, who inspects all of its trash as it comes off of the dumpster truck. Since US policy is largely based on creating any industry other than producing manufactured goods, green engineering would seem the way to go. Or is conservatism all about only keeping what businesses that are in existence going at all cost?

Comments for this entry have been closed
Return to top