Saturday, February 21, 2009

The Government-Business Relationship

I used to think of government's regulation of the business sector as similar to the role of referees in sports. Government lays down the rules, draws the lines within which the game must be played, and then keeps the players honest. Ideally, the rules and oversight will set limits that channel rather than overly inhibit the players' energy.

But the recent government bailouts of the financial and automobile sectors suggest more of a parent-child relationship, in which the offspring object to any parental interference, only to come back for money when the going gets rough.

Mergers and the Public Interest

Now that we've been told that some financial institutions and automobile companies are "too big to fail", leading to vast bailouts at public expense, it's clear that the public has a vested interest in deciding whether corporations should be allowed to attain such a size and pervasive impact. Like trees that grow to tower over a home, the survival of the home becomes increasingly threatened. It may be a fine arrangement until the day when economic winds send the tree crashing down.

It would be interesting to see if this potential impact was even considered when mergers were creating ever larger banks and insurance companies.

Peanuts and the Economic Value of Inspectors

There's no lack of examples these days of how a lack of government oversight can be a business's worst enemy. Seems like anti-regulatory policies don't so much set corporations free to grow as give them the freedom to hang themselves.

According to an AP article, the inadequate number of state inspectors may have contributed to the outbreak of salmonella in a Georgia peanut plant. The Peanut Corporation of America now "faces mounting lawsuits and a bankruptcy filing." A useful question is how frequent were inspections at the plant, when Georgia's 60 inspectors have 16,000 sites to monitor.

The logic of self-interest would suggest that businesses will monitor themselves to avoid bad publicity. But obviously that logic fails here. Self-interest in a highly competitive world means cut corners and do whatever you can get away with.