Experts: Excessive Regulations Promote Corporatism, Hurt Taxpayers

News Analysis

California has had a busy legislative session, with the state’s lawmakers passing a series of bills increasing regulations on businesses. As California’s entrepreneurs brace for another series of measures in the coming years, many economists warn that the unintended consequences of new laws are being all but ignored.

Economist and Pacific Research Institute Robert Murphy told The Epoch Times that government rules impacting markets often make waves that have the opposite effect of what politicians promised.

“In practice the regulations carry unwanted side effects. This is either because of ‘unintended consequences,’ in which policymakers didn’t realize how their meddling could backfire, or because of simple deception, in which the regulators had an actual motive that was different from how the measures were sold to the public.”

Regulation Leads To More Regulation

Assembly Bill 1133, a bill that amends the Business and Professions Code, allows brewers to gift bars and restaurants up to five cases of branded glassware. While the bill might seem harmless, AB-1133 is itself a response to older regulation that impacted companies such as Teamsters Union and Anheuser-Busch. In the end, these firms’ hands were forced to get politically involved to be granted exemptions, engaging in what economists call crony capitalism.

As explained by Dan Walters for Calmatters, laws enacted some decades ago changed the state’s code to reflect a need from the liquor industry.

At the time, lobbyist Artie Samish managed to push a package of “tied-house” laws that categorized liquor trade firms in three tiers, distinguishing them and placing them in manufacturer, wholesaler, and retailer classes. This forced companies to refrain from getting involved in activities that did not belong to their particular trade.

While these rules were originally thought up as a means to keep large companies from facing competition, one of the real-world effects of these laws was to keep liquor companies from providing branded material to restaurants and bars for free. Because the practice violated the “tied-house” rule that states firms may not provide anything worth more than 25 cents as part of advertising efforts, companies recently lobbied the current legislature for an exemption. This produced AB-1133, which has already been approved by Gov. Gavin Newsom.

This makes the new law “a prime example of what one might call the darker side of liberal governance, a belief that the public interest is served by regulation of even the most mundane human activities.”

Ironically, consumers are usually the ones who suffer the consequences of these new rules, even though they often support them politically, said Murphy.

“The public tends to support government regulation of business, because there is always some ‘general welfare’ rationale for it,” Murphy said.

As Waters put it, “the rationale behind the laws was to prevent domination of the liquor trade via vertical integration, but their real effect has been to force members of the industry to plead for exceptions to the arcane regulations the laws spawned.”

Darker Consequences Of Too Much Regulation

According to research from George Mason University’s Mercatus Center, the growing regulatory burden creates a culture of favoritism that encourages companies to become actively involved in seeking government-backed privileges.

One of the most perverse consequences is to actually put the cost of this relationship between government and business on the shoulders of taxpayers, who foot the bill for the growing number of agencies necessary to enforce such rules.

However, that’s far from the only problem with an overly burdensome regulatory environment. The public also ends up losing faith in both the market and economic freedom, generating a growing demand for even more government involvement in business.

This, Mercatus’ Matthew Mitchell argues, is fueling socialism’s current popularity in the United States, with California being a particularly fertile ground for the ideology.

But to former residents of socialist countries, this passion for socialism is dangerous.

According to immigrant Reina Howard from El Salvador, policies designed with the ideology in mind prompted her country to descend into a state of terror and misery, pushing companies abroad and even encouraging violence and class warfare.

“Due to political instability and the terror Communists groups created in order to advance social justice and socialism, I left El Salvador without knowing how I would start again,” she wrote.

She eventually found stability and prosperity in a freer America — a reality that could be threatened by a failure to address the consequences of overregulation and crony capitalism culture.