Business & Economics


Profits at the point of a gun?

Robbery not allowedIn his “first big public appearance” since being named Barack Obama’s chief antitrust enforcer, Assistant Attorney General William Baer addressed a gathering of antitrust lawyers at the American Bar Association. Baer stated that during the last five years, U.S. antitrust prosecutors collected 10 times as much money in criminal fines as they spent on criminal prosecutions.

“That’s a return on investment a lot of people in the private sector would envy,” he said.

There is so much wrong here that it’s hard to know where to start. First of all, was he joking? Perhaps—actually, I’d say he was half-joking. So let’s take the serious half seriously and ask what his little quip accomplishes.

In my mind, what stands out is how he blurs the line between economic power and political power. Economic power is productive ability—essentially, it’s Apple’s ability to offer an iPhone that millions of people want to buy. Political power is coercion—essentially, it’s the government’s ability to separate citizens from their property by threatening punishment, or by direct seizure.

The term “return on investment” offers a measure by which one can compare the profitability of placing money in various productive enterprises. If ROI is 2% in grocery retailing but 5% in petroleum refining, then that’s one factor in making an investment decision. But the government does not produce economic goods, nor does it generate profits. All it can do is seize the profits of productive enterprises.

Government officials who want to augment their power have every incentive to blur this distinction. Baer would like some of the aura of profitability to rub off on him. We shouldn’t let him get away with it.

If a common criminal “invests” $250 in a pistol and makes off with $10,000 in cash from a bank, has he achieved a 4,000% “return on investment”? Of course not. Clearly the robber produces nothing, he only takes. It would be a corruption to apply the term “return on investment” to his activities.

Taking money at the point of a gun—whether the gun belongs to a robber or a federal prosecutor—is not and can never be productive, and it’s a moral offense to equate the two. I’ve written elsewhere about why I question the propriety of the antitrust regime, as well as the penchant of federal antitrust enforcers to brag about their criminal prosecutions of businessmen. Baer’s little half-joke deserves to be completely condemned.

(This is cross-posted from LaissezFaire.)

Image: Creative Commons License Anders Sandberg via Compfight


Altner on Forbes.com: What Explains GM’s Problems With The UAW?

I have a new piece on Forbes.com on General Motors, the United Auto Workers, and the nature of labor laws. It contains a blend of history and analysis.

Long before General Motors neared collapse, it was a proud and flourishing symbol of American manufacturing. In the 1950s, GM was the first company to ever make $1 billion in a single year, and it had 50% of the domestic automobile market. GM executives used to proudly quip, “we’re still losing 5 out of every 10 sales!” What happened to this great company?

Many factors are acknowledged as contributing to GM’s decline: it juggled too many brands, over-extended its dealer network, failed to respond rapidly to market cues, and struggled to work with its union, the United Auto Workers.

But the extent of its problems with the UAW is astonishing—and the problems themselves warrant explanation. Consider some of the onerous arrangements that GM’s management agreed to. …

Read the whole thing.


Regulations versus food trucks in New York City

Off The GridOne nice thing about living in Orange County, California, is that food trucks are seemingly everywhere that is convenient. A waffle food truck pulls into my apartment complex, offering a late Saturday breakfast. Different trucks rotate in on Thursday evening, offering a quick dinner. Food trucks visit the corporate park where I work, offering lunch. Food trucks also have a strong presence at local parks and events. And the variety is wide: I have seen food trucks serving lobster, sushi, pizza, Thai, vegetarian, Mexican, monster burgers, etc. If you can think of the food, it is probably served out of a truck in Orange County.

Orange County, California, is surely no free market when it comes to the mobile food industry. But contrast the industry’s presence in O.C. to the dearth of food trucks in New York City, as described in this recent New York Times column:

As I was walking through Prospect Park recently, I wanted to find a healthful snack for my son and something for me. The only options, though, were the same sort of carts that my dad took me to in the ’70s: Good Humor ice cream, overpriced cans of soda and overboiled hot dogs sitting in cloudy water. This seemed ridiculous. In the past few decades, food in New York City has gone through a complete transformation, but the street-vendor market, which should be more nimble, barely budges. Shouldn’t there be four Wafels & Dinges trucks for every hot-dog cart?

Why are food trucks not easy to find in New York City? He blames regulations:

There are numerous (and sometimes conflicting) regulations required by the departments of Health, Sanitation, Transportation and Consumer Affairs. These rules are enforced, with varying consistency, by the New York Police Department. As a result, according to City Councilman Dan Garodnick, it’s nearly impossible (even if you fill out the right paperwork) to operate a truck without breaking some law. Trucks can’t sell food if they’re parked in a metered space . . . or if they’re within 200 feet of a school . . . or within 500 feet of a public market . . . and so on.

Things can get so bad that one food-truck employee spent eight hours in jail for vending falafels without the proper license!

The author concludes by comparing New York City regulations with the Third World:

In Ecuador, for example, it takes about 56 days and 13 separate procedures to get all the legal paperwork done to start a new business. In the United States, it’s an average of six days and six procedures. But if you want to open a mobile-food business in New York, it’s essentially like starting a business in Ecuador — and that’s if you can somehow arrange a permit.

I do not agree with everything the author says, but this whole article is worth reading because it illustrates how regulations can mire and discourage business activity.

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Are web giants “scary monopolies that somebody needs to do something about”?

Federal Trade CommissionOver at TheAtlantic.com, Justin Fox offers thoughts on how antitrust policy will impact social media companies going forward. The article is worthwhile reading, in part for what it reveals about the smug sense of entitlement policymakers exhibit when it comes to America’s most successful companies.

The Web’s New Monopolists” floats a number of trial balloons, including:

  • The desirability of regulating companies like Twitter and Facebook as “utilities”
  • Whether Internet giants such as these, not to mention Apple, Amazon, and Google, should be seen as “scary monopolies that somebody needs to do something about”
  • Whether a company like Facebook should be nationalized
  • Whether “it’s possible to spin a credible tale of antitrust lawyers enabling disruption and innovation” through enforcement measures such as those against Microsoft in the 1990s.

What’s on display here is the idea that the more success a company earns, the more it must put up with coercive control over its business practices. Fox’s conclusion says it all:

So all praise to today’s would-be utilities and monopolies, as they try to build enterprises that own their markets and that we can’t do without. But when they actually succeed, don’t think we shouldn’t be sniffing around in their business. At a certain point, it becomes our business, too.

Unfortunately, the businessmen subjected to antitrust enforcement typically accept it as a cost of doing business. “There’s a joke in Silicon Valley,” says UC Berkeley economist Carl Shaprio. “‘You know you’ve really made it when you’ve got antitrust problems.’ That’s the sign of success.”

Notably, Fox’s article contains not a single quote or mention of anyone—businessman, academic, or policy analyst—who opposes antitrust regulation of Internet companies on principle.

Image: Creative Commons License Cliff via Compfight


A glimpse of the red tape that cab drivers deal with

Taxi SignI never cease to be shocked by how people who I meet on a regular basis are held back by regulations. For instance, I was having a nice conversation with a cab driver who was transporting me to my home after a business trip. He recently came to the country from Africa and he was ecstatic to be living here, especially in beautiful Southern California.

Naturally, I was curious to learn about the different kinds of regulations that taxi drivers must comply with. In California, my driver explained, cab drivers who have a local-government-issued permit to pick up passengers in one city are not necessarily permitted to make pickups in a neighboring city.

“How does this impact you?” I asked him.

He indicated that he often picks up passengers from John Wayne Airport in the city of Santa Ana, where he is licensed, and takes them to Disneyland. But since Disneyland is in the neighboring city of Anaheim, he is legally forbidden to pick up passengers there and take them back to the airport. Instead, he is forced to drive back to the airport without a passenger, wasting his time and costing him a potential fare.

Of course, he could try to jump through the regulatory hoops to get a permit from the city of Anaheim as well. But this requires money, time, and a lot of paperwork. And even if he tries, the city of Anaheim might not give him a permit anyway, because they may want to cap the number of cab drivers who are allowed to operate in their city, just as some other cities do.

This is yet another example of the often unseen aspect of the regulatory state: an imbroglio of rules that make it more cumbersome for decent, hardworking people to earn a living.

Image: wpclipart


What can go wrong if the UAW unionizes foreign automakers? Let history speak

GMC truck2If you want to imagine the potential hazards of the United Auto Workers unionizing foreign automakers’ factories in the American south, consider the following episode from the history of General Motors. It provides a glimpse of how bad things can get in a Wagner Act world where businesses are forced to deal with unions. (I am drawing my information from Paul Ingrassia’s Crash Course: The American Automobile Industry’s Road From Glory to Disaster.)

In early June 1998, then-current UAW-GM working arrangements allowed GM employees to go home once they met their daily production quotas. But employees at GM’s two Flint, Michigan, body plants were regularly meeting these quotas after four to five hours worth of work, and then heading home with a full eight hours’ worth of pay. If GM wanted employees to work in the afternoon, it needed to pay overtime. If GM wanted to stay competitive with its non-unionized Japanese rivals, then this kind of institutionalized inefficiency needed to go.

GM executives anticipated that directly fighting UAW representatives to end this long-standing practice would be too costly. So they instead relocated some of the Flint stamping equipment to other facilities where it could be used for eight hours worth of daily production. Equipment reallocation is commonly done at GM and at other large manufacturers. But, in this case, the UAW leadership perceived this move as a direct threat to their cushy working arrangement and more broadly feared what such a move could mean for job security down the line.

So they launched a strike.

Within one week, 9,200 GM employees walked out of two metal-processing plants in Flint. By abandoning their paid posts, these striking employees stopped production of vital car body parts. This sent shockwaves throughout GM’s entire supply chain, halting production at many assembly plants that depended on body parts produced at Flint. As a result, the strike idled 175,000 GM workers and tens of thousands more at plants owned by other companies that supplied parts for GM.

The strike was devastating. It lasted fifty-four days and cost GM roughly $2.2 billion. By one reckoning, because of the strike, the entire industrial production of the United States dropped by 1 percent for the month of June, the sharpest monthly decrease in five years. For GM, this was the costliest strike that they suffered in twenty-eight years. Once the strike ended, GM reluctantly returned the equipment to the Flint metal-stamping plant. While this happened in broad daylight, UAW members stood by cheering for what was basically a celebration of willful inefficiency.

Events like the 1998 GM strike remind us about the dangers of laws that force businesses to deal with unions.


On unionization and the UAW’s campaign in the South

VolkswagenRecently, United Auto Workers leaders have been urging autoworkers in American Nissan, Volkswagen and Mercedes-Benz plants to organize with the UAW. If any of these unionization attempts is successful, then one of these facilities would become the first unionized foreign-owned automobile assembly plant in the right-to-work South.

There are many reasons why an automaker may not want its plants unionized, especially by the UAW. They may observe the history of GM’s struggles with the UAW, seeing how the UAW organized crippling strikes that shut down operations for over a month. They might see how the UAW managed to obtain costly benefits that GM could not afford to pay, such as a “jobs bank” that paid employees not to work, and rules that allowed workers to retire with full pensions in their 50s. They might also see how the UAW obtained 2,000-page “bargaining agreements,” which imposed numerous counterproductive work rules that made it cumbersome for simple and time-sensitive tasks to be completed in a timely manner. For example, work rules required employees to summon a senior electrician and a senior motor repairman to be present for a simple motor repair job that any junior employee could perform.

Nevertheless, even if Volkswagen, Nissan, or Mercedes-Benz wants to ward off UAW representation, they are legally forbidden from doing so. The Wagner Act deems it to be an “unfair labor practice” for businessmen to discourage employees from unionizing. The Wagner Act also mandates that if the union can collect enough employee signatures, an election must be held to decide whether that union will represent the workforce, regardless of the wishes of the employer. If the union wins a majority in the election, then the Act forces the employer to recognize the union as the exclusive bargaining agent of all employees in the bargaining unit. The Wagner Act also forces employers to negotiate with unions “in good faith” once employees are unionized. I have previously blogged about how this forced arrangement can gradually lead to more and more costly and unreasonable burdens.

Hence, no matter how much any of these automakers may prefer not to have their U.S. factories unionized, labor laws make them sitting ducks at the mercy of organized labor. They are legally forbidden from doing anything to prevent unionization and instead can be pulled into a forced courtship, followed by a forced marriage, followed by many rounds of forced marriage counseling where unions can repeat the tactics that weighed down GM. Meanwhile, as my colleague Tom Bowden has pointed out elsewhere, non-unionized competitors can nimbly adapt the latest technologies and processes without being bogged down by labor disputes over every innovation that could potentially eliminate jobs that are no longer economical.

Why can’t we move to a system in which business and labor relationships are completely voluntary? One in which businessmen are free to decide for themselves whether it is good for business to work with certain unions, including the freedom to work with union leaders who raise reasonable concerns while refusing to deal with those who make unreasonable demands?

Image: 4028mdk09 at Wikimedia Commons


Topix.com: How Obamacare Fleeces the Young

I have an op-ed today on Topix.com’s Politix page about Obamacare’s age-related rate restrictions, which require younger people to pay higher insurance premiums in order to subsidize the coverage of those older. I say in the article:

No one, presumably, would be comfortable with the idea of fleecing our children and grandchildren in order to lighten our bills. But supporters of the Affordable Care Act have taken to arguing that forcing young people to subsidize older people isn’t some new consequence of the health law—all insurance, they claim, requires some people to subsidize the expenses of others. Take fire insurance. Ten thousand people might sign up to insure their homes, but only a couple of those homes may end up burning down. The premiums paid by those whose homes did not burn down go toward rebuilding the homes of those whose did.

“That’s how insurance works,” insists health policy analyst Aaron Carroll, who concludes that the health law’s age-related rate restriction is “really not much different than how insurance is supposed to function, by transferring money from the more-healthy to the more-ill.”

But by equating traditional insurance with the health law’s age-related rate restriction, commentators like Carroll ignore a key component of insurance in a market absent government intrusion: the freedom to buy a policy that is priced according to your own risk—a policy that subsidizes no one.

Check out the whole article here. I previously addressed another argument made by proponents of this restriction, here.


The latest facts on drugs in development

magic pillsOver at Policy and Medicine, the bloggers have generated a really interesting summary of drugs currently under development by the nation’s pharmaceutical companies. P&M’s summary starts this way:

According to [a] report released by PhRMA [Pharmaceutical Research and Manufacturers of America], companies have more than 5,400 medicines in development globally, and more than 70% of therapies in the pipeline are potentially first-in-class and could offer patients new treatment options, and a notable number of potential therapies target diseases with limited treatment options such as ALS and rare diseases.

The P&M breakdown is much more readable than the reports on which it is based (although there are copious links to the underlying reports, for those who are interested in pursuing them). The breakdown is categorized by the targets of drug research: Alzheimer’s, arthritis, asthma, cancer, and so on. The amount of interesting factual detail on each is astounding.

These are facts to keep in mind when you hear policy debates surrounding drug development, debates that raise big questions like: What are the effects of FDA regulation? Should the FDA even have a role? How does government funding affect the choice to develop certain drugs? Etc., etc.

Image: Creative Commons License Eric via Compfight


To cope with Affordable Care Act, Regal Entertainment cuts hours of thousands

RegalFor those who may have missed this recent story:

The nation’s largest movie theater chain has cut the hours of thousands of  employees, saying in a company memo that ObamaCare requirements are to  blame.

Regal Entertainment Group, which operates more than 500 theaters in 38 states,  last month rolled back shifts for non-salaried workers to 30 hours per week,  putting them under the threshold at which employers are required to provide  health insurance.

One Regal theater manager told FoxNews.com the move has sparked a wave of  resignations from full-time managers who have seen their hours cut by 25 percent  or more.

“In the last couple weeks, managers have been quitting on a daily basis from  various locations to try and find full-time work,” said the manager, who asked  not to be named. “Regal up until now has never restricted anyone to anything  below 40 hours.”

The manager told FoxNews.com ObamaCare has had the unintended consequence of  taking food off his table.

“Mandating businesses to offer health care under threat  of debilitating fines does not fix a problem, it creates one,” he  said. “It fosters a new business culture where 30 hours is now  considered the maximum in order to avoid paying the high costs associated  with this law.

“In a time where 40 hours is just getting us by, putting these kind of  financial pressures on employers is a big step in a direction far beyond the  reach of feasibility for not only the businesses, but for the employees who  rely on their success,” he said.

The Affordable Care Act makes it illegal for most employers to hire a full-time employee without also providing him with health insurance (or paying a hefty fine.) Commanding employers to provide health insurance does not change the fact that it does not make business sense to provide it in some cases. So it should not be surprising that some employers are instead choosing to scale back employee hours.

Image: Anthony22 at Wikimedia Commons