Machan's Little Libertarian Encyclopedia
Chapter 13: Government Regulation
In the USA there are two well known legal principles that are invoked to give government regulation of business legal justification. They are the federal constitutional provision of the interstate commerce clause and the common law provision of the police power of government.
Article I, section 8 of the US Constitution contains the provision that Congress has the power to regulate interstate commerce. The colonies had engaged in various mercantilist economic practices — imposing duties on imported goods, restricting trade, etc. — and this needed to be stemmed.
The police power, in turn, is a legacy of feudalism where the king is responsible for how communities are shaped. This had been imported into American law from England and other European countries.
As to the moral or philosophical support for government regulation, there are essentially four arguments for it: the creature of the state argument we already met with, advanced by Ralph Nader and his followers; two types of market failure argument invoked by, among others, John Stuart Mill and John Kenneth Galbraith; positive rights to provisions argument advanced by such political philosophers as Alan Gewirth and John Rawls; and the judicial inefficiency argument proposed by the Nobel Laureate economist Kenneth J. Arrow.
Creature of the State: The first argument states that corporate commerce is a creature of government itself — it was brought into existence by acts of the British mercantilist government so as to enhance the wealth of the country. Since government created them, it is authorized and indeed ought to regulated them to accord with the public purpose. Clearly, morally, if one has created something, one is responsible for it and may do with it what is reasonable, responsible.
Market Failures: Although the free market is generally a good provider of goods and services, sometimes it is inefficient. For example, this happens when public services such as the provision of electricity or water is involved. There competition involves duplication and thus inefficiency in the use of resources. So companies should be made into monopolies or taken over by the state. Throughout the world this view has led to the abolition of free markets in some industries and the institution of extensive government regulation of prices, wages, labor relations, etc.
Others have gone further and said government must correct the unwillingness or inability of markets to provide certain values — for example, public libraries, which the market will not furnish. Government regulation, then, is but the legitimate effort of a government to remedy what the market ought to but fails to achieve. We know what these are through the vote. The underlying idea here is utilitarianism — the central obligation of the state is to secure the greatest happiness of the greatest number and when the market fails to achieve this, government must step in with its remedial regulatory policies.
The Positive Rights argument: Some hold that we have basic human rights not only to not be killed, assaulted, or robbed (to life, liberty and property, that is) but also to be provided with various goods and services from other persons around us. The positive right to health care, social security, public education, unemployment compensation or safety and health protection at the work place are examples. Government is established among us to secure all these rights and government regulation must be instituted so as to adjust private endeavors so that these provisions will be forthcoming. The argument is really dependent for its force on the theory of positive rights.
Judicial Inefficiency: Some social problems that privatization cannot solve, namely, some kinds of pollution. When A pollutes the air mass and B suffers as a result of this, neither can A find B so as to secure permission, nor B find A to launch lawsuit. So there is neither a market nor a judicial solution available to the parties. Ergo, government must take over and regulate the sphere of judicial inefficient human endeavors. (This is not so much an argument for government regulation of business as one for government administration of what some view as unavoidably public spheres.)
What about these arguments, then?
Companies are not state created: A fact of history does not establish a moral claim. States used to establish churches and printing presses, yet few defend their authority and responsibility to do so in Western countries, seeing that they should never have done so in the first place. It was learned that the state's sovereignty meant the sovereignty of some people over the lives of other people and so the idea developed that, instead, individuals ought to be recognized as sovereign. And if individuals are sovereign, there is no justification for regulating their lives, be it in commerce, religion, romance, or athletics.
Market vs. Political Failures: The argument that because some inefficiency may occur in the market, we ought to place the matter into the hands of government ignores individual rights and state inefficiency. When an industry is taken out of the market, competition ceases. Work stoppages or strikes can shot down the entire industry leading to restrictions on the free movement of laborers. That too high a price to extract for efficiency and, indeed, far more inefficient than occasional duplication of facilities and resources.
As to the values the market does not always provide, it is once again dubious to suppose that government will supply them in the right proportion, according to a sound set of priorities, effectively, without enormous cost at some other point of the social order. Libraries are now nearly obsolete, except for a few people who could probably be helped much better without building them. Government response to political sentiments expressed in the voting booth is extremely risky since such sentiments are merely voiced, not reconciled with one's budgetary restrictions. Furthermore, the creation of the common pool or valued resources creates a tragedy of the commons, whereby people recklessly overuse resources and create, as is quite evident, huge debts and deficit spending by the state.
The Myth of Positive Rights: We do not have positive rights — because we are not owed servitude from our fellow citizens. Yes, our parents and some next of kin have some responsibility to help us reach maturity. But thereafter we must secure what we need and want by way of voluntary exchange, not government protection of positive rights. These rights are impossible to protect consistently, anyway, and are certainly their protection makes protecting negative rights — our rights to life, liberty and property — impossible. If doctors have the right to liberty but patients the right to be healed, what if the doctor chooses to attend the graduate exercise of his or her daughter but someone in the neighborhood has a right to be healed? Whose right prevails? And one what basis is that going to be decided, now that the system of rights has been corrupted?
Restoring Judicial Efficiency: What of the troublesome case of judicial inefficiency? The problem is not helped at all by government regulation — it merely produces discontentment and injustice. Government cannot rationally decide which firm or individual ought to dump harmful wastes on to others' bodies and properties. It cannot establish collective priorities for individuals who are diverse and may flourish in utterly different ways.
Even in public spheres dumping may not be undertaken when no permission can be obtained, unless the result does not increase the prevailing risk of harm to individuals. When manufacturing firms pollute, they utilize other people who did not give their permission for their own purposes. They avoid the full cost of their activities by stealing the resources of others, sometimes even others' lives.
The way to control pollution, then, is to invoke a strict enforcement of personal autonomy and to privatize as much as possible. In areas were this is difficult, a policy similar to what must be done in case of highly communicable diseases needs to be implemented, namely, quarantine.
Generally, government regulation assumes that some people happen to be superior in intellectual and moral gifts than others and that they can be identified and it is wise for them to assume superior powers of the rest of us.
When the government — any branch, any level — regulates, it practices a form of tyranny. It is not the sort we usually dub by that term, ones we know via Soviet (Stalinist) or National (Hitler's) socialism. Those were massive, totalitarian tyrannies.
The kind where government keeps nagging people in nearly every profession (except those protected by the First Amendment's prohibition of regulation) is more petty, less dramatic, less dire. But it is tyranny, nevertheless.
The reason is actually quite simple: government regulation aims to prevent mishaps by forcing people to act in ways government experts believe are safer, fairer, less difficult to understand than what government believes life should be. It is what we might call a form of preventive justice, by exactly the means that the criminal law prohibits — as noted before, a kind of prior restraint.
Crime fighting does not permit restraining people because they might behave harmfully, injuriously, dangerously. Everyone can, even if they will not, choose such behavior. But the law is supposed to punish people only if they have been proven to act harmfully, hurtfully. It is not supposed to second guess how people might behave and then restrain them, not in a free society.
Government regulation of industry, transportation and various other professions amounts to treating people as if the government were our parent who needs to make sure we do not run risks. But the government is not made up of superwise people, gods, who have the authority to guide what we do in life. Tyrannies do that and they are politically evil. Government regulations are evil, too, in less dramatic ways.
Proponents of government regulation think government must prevent bad things from happening, even if our rights are violated thereby, and the cost is of secondary significance. They see government as upholding principles of justice when it regulates people's activities who have done nothing harmful but merely could do so.
In a free society it is only once harm is done to others — or when there is a clear and present danger of such harm being done — that government has the authority to act against people's plans, purposes, wishes. The mere possibility of harm is no justification for government action.