Regulation, Fascism and Crony Capitalism
Updated: Oct 28, 2020
Regulation is destructive of liberty. That is why Adolf Hitler suggested using a mass of regulation as a strategy to entrench state power.
Regulation is destructive of liberty. That is why Adolf Hitler suggested using a mass of regulation as a strategy to entrench state power. Politicians and crony capitalists like regulation because it enables corrupt trading of anti-competitive favours for donations.
Lord Voldemort, like his avatar Gellert Grindelwald (defeated by Dumbledore in 1945), is the quintessential power grabber working out of the eternal Marxist playbook based on envy and resentment. This time the oppressed minority is the Wizard Community and the supposed oppressors are the Muggles, instead of Jews and Germans, or capitalists and workers, or blacks and whites. But the goal is the same. ‘There is only power and those too weak to seize it’, as Voldemort explains to Harry at the end of ‘Harry Potter and the Philosopher’s Stone’.
It has nothing to do with the welfare of the allegedly oppressed. They almost inevitably suffer a great deal as a consequence of their self-appointed leaders’ actions.
As the death eater Barty Crouch Jr says in ‘Harry Potter and the Goblet of Fire’, decent people are so easy to manipulate. So, when you hear an arch manipulator and all round Totalitarian evil doer enthusiastically supporting state regulation you should wonder about it at least a little.
The evildoer in question here is Adolf Hitler. Let’s first dismiss the notion that Hitler was not a socialist. He was the leader of the National Socialist and German Workers Party. There is a clue in the name. The key information is however contained in a well-known passage in his book ‘My Struggle’ (‘Mein Kampf’). He composed it in jail after his coup attempt in Munich in November 1923. His was just one of a number of (mainly communist) rebellions prompted by the 1922-23 German hyperinflation, and the linked Franco-Belgian occupation of the Ruhr.
Maybe life really is a James Bond movie where the villain feels compelled to explain his villainy. In any case Hitler carefully explained what he was up to. Regulation is his key strategy to grab power for the state. He wrote that he disagreed with the way in which Russian Socialists (in more modern parlance ‘communists’) had approached the mutually desired goal of making the State all powerful. Sensible socialists should not, he said, attack bourgeois property-based liberty directly by confiscating all property and liquidating its owners (‘capitalists’). It was highly disruptive and liable to provoke effective resistance.
Instead, Hitler added, the state should introduce countless new regulations. Each would be justified on the basis of health and safety and crime fighting grounds. Nowadays I am sure he would have added ‘environmental’ aims since these are practically impossible to pin down. The real purpose of the regulatory web was to allow the socialist spider to drain the life out of liberty.
The sheer weight of regulation with literally millions of pages of text makes it harder and harder for individuals and smaller businesses to manage. People must defer more and more to bureaucrats’ wishes until, despite legal formality, the reality is the state controls you and your property. Private property and, with it, liberty – the two are inseparable – would be extinguished, just as Hitler intended.
Nowadays we are in the midst of a similar power grab. For example, governments have used anti-money laundering regulations to make opening bank accounts and moving our own money around harder and harder. It’s supposed to hamper organised crime in the illegal drugs markets - markets and organisations which wouldn’t even exist in a free society. But it’s just an excuse for the state to meddle.
We can be quite sure that people in the illegal drugs business have no trouble moving money around and keeping it hidden. But that is not the point. The idea is to harass the population at large. The harder it is for productive people to deploy their money or time freely, the less they own it, or indeed themselves. The closer, in fact, the population is to sheeple slavery.
It is worth asking what exactly regulation is. Is it the same thing as law or is it the opposite? Well, a regulation is an instruction to act in a certain way, often in incredible detail. Much was made, during the Brexit referendum in 2016, of the EU’s astonishingly detailed regulations on the manufacture of pillows.
The complaint of course was that pillows are thereby made much more expensive because of the costs of hiring people to ensure compliance with the regulations. Clearly, this kind of thing multiplied across every sector of commerce would make all goods and services unnecessarily expensive.
Indeed, when I was active locally in UKIP (which had a significant Classical Liberal element) and then the Brexit Party, we regularly mentioned an estimate that (increasingly EU imposed) regulations cost Britain around £200 billion annually. (We were also regularly smeared as ‘fascists’) Whatever the estimate, regulatory compliance inflicts a burden in unnecessarily high living costs.
This is true. But it is only part of the story. Once regulations have ensured that only pillows conforming to EU rules are allowable then innovation in pillows ends. Nobody can bring a better pillow to market. Progress depends on people taking the business risk of introducing better products or better ways of making them. So, the cost of regulation is also a deadening of innovation by preventing small competitors from introducing new products.
Many would like to think that economic progress comes from big corporations making gradual improvements. But it is not so. Small companies are key. They and the consumers are the main, and intended, victims of state regulation. The really big improvements in living standards stem from radical changes introduced by new upstart companies.
Most small firms stay small, but twenty years later a great many people work for what had then been small firms – and rather fewer still work for the same big companies. A classic example of radical progress is the rise of new American technology companies to displace all sorts of producers. To give an example, Apple and apps on Apple phones have dislodged makers of cameras, publishing equipment, land telephones and even road atlas makers.
An EU style regulatory thicket is not consistent with radical innovation. It makes progress that much harder. The EU is full of big old companies. But it has few new, fast growing disruptor companies. And it has missed out on the growth and the high paying jobs that deregulation would have brought. There must be some reason, for example, why Italy’s industrial production has fallen back to 1970s levels. It has been a hideous EU and domestic regulatory nightmare for years.
Regulation attracts ‘Big Business’ like catnip. All that is needed is a fairly modest investment, in Brussels or Washington, in lobbyists and glad-handing officials. To say nothing of, indirectly, donating funds in a politically suitable way. In return big companies basically buy regulation designed to rig markets. They buy crony capitalist regulatory deals to restrict competition and disadvantage smaller competitors.
A classic strategy is to require all companies in a business to carry out the same amount of unnecessary compliance. Say a new regulation means each company has to hire an extra person to fill in pointless forms. The cost of the extra employees is proportionately less for a big company than for a small one. Eventually, after enough unequal burdens are inflicted by the state on behalf of its cronies, smaller firms drop out, or don’t enter the market.
The result? The goods cost more because of the permanent layers of regulatory cost inside the remaining firms. There is another upward twist in state spending to reward their friends in parasitical public bureaucracies. There is also now no possibility of anybody introducing radically better products. Progress has been ruled out, literally. Lastly the industry has been turned into a cartel, a kind of joint monopoly, which can basically overcharge customers and become inefficient and lazy.
Tom Luongo over on ‘Gold, Goats ‘n Guns’ describes how he and some other local goat producers looked at establishing a local slaughter house. They concluded that the idea worked economically. But the thicket of regulations protecting the big entrenched operators made the whole venture untenable. One is reminded of the destruction of small local abbatoirs in Britain because of EU regulation. Every loss of opportunity due to regulation is the loss of a little bit of the better future we could have had.
Cumulatively the loss of responsiveness, value for money production, and sheer spirit or energy has become a big problem. Our societies will need responsive, flexible and enterprising business sectors to weather the difficulties looming ahead. Things will be a lot harder if many sectors are regulated cartels. These businesses will be incapable of creative responses themselves. But they will still be able to stifle initiative in others.
One example of an industry which has been cartelised is housebuilding in the UK. Before WWII a host of local builders bought fields and built sound, value for money houses in tune with market demand.
Then the planning system came in after WWII. Now those firms are gone and the market is dominated by a few companies who work the planning system. Are they likely to disrupt their regulatory cocoons by lobbying against restrictive state land planning? Are they going to rock the boat by promoting radically cheaper housebuilding methods? Not really, one would suggest. It is all very cosy for them. But for everyone else the result has been a terrible loss of well being caused by unnecessarily high housing costs (see the post on May 24th, ‘Cheaper, Better Housing after the Fall’).
A libertarian should have nothing against big companies which get that way by producing the best value products in free markets. Quite the contrary. But he should detest crony corporatists or crony capitalists who are stifling progress for their own ends. It does no good in the end. It is fundamentally destructive and corrupt. Inexorably rising regulatory loads lie behind much of the impoverishment of productive employees and business owners in the EU and in the USA.
Of course, it is very hard to explain this to people. The beauty, if that is the word, of Hitler’s regulatory ruse to impose state power – hand in glove with compliant crony capitalist ‘big business’ – is that most people do not look beyond the first order effects advertised by the promoters of selfishly motivated regulatory proposals.
Let’s say politicians introduce new regulations allegedly intended to ensure some animal, red squirrels for example, is not harmed by forestry. In fact, the regulation is likely to be promoted by a public sector ‘red squirrel’ agency to expand its budget. But it will have been drafted by larger crony capitalist operators. They will seek to inflict disproportionate regulatory costs on smaller competing operators. They now need to hire an expensive red squirrel compliance officer each.
Most new regulations are drafted by the corporate interests planning to benefit from them. Not many are written by officials. None are written, or mostly even read, by elected legislators. (George McGovern, the 1972 Democratic Party presidential candidate, bought a hotel which failed; he found regulatory compliance crushing. and said he wished he had realised how damaging the measures he had helped pass as a politician actually were.)
Back to the squirrels. This seemingly cuddly, squirrel friendly, measure is nothing of the kind. More public officials and compliance employees are hired, thus depriving us of whatever useful goods and services they might otherwise have produced. The big firms in the sector in question get rid of some smaller competitors. They can charge consumers more. Politicians get donations from admiring big company owners.
Who loses? Consumers and small forestry concerns, and, obviously, red squirrels. Why ‘obviously’? Well the regulation makes red squirrels a serious problem for would-be producers. Best to zap the little blighters before any officious bureaucrats find them.
All this is well known in economics circles, but not to many others. In sector after sector such as nursing homes or childcare, and many others, costs have been driven up and quality driven down by deliberate regulatory manipulation by crony capitalists and officials.
That doesn’t mean you can generate politically effective opposition to regulation. The political problem in a nutshell is that it doesn’t make sense for most people to devote time to countering regulations, or other interventions, which will cost them something, but not much, individually. They get as far as ‘ah, helping squirrels, how cute,’ and move on.
The total cost to society, spread across many people, of each new regulation will be considerable. The total cost of all regulation is incalculable. It could be anywhere between the simple deadweight regulatory compliance cost of 10% of the economy and a 50% or more loss of future wellbeing (see May 19 ‘Twice as well off without Politics’). The cost to society will certainly be greater than the benefit to the vested interests pushing for more regulation, and their political enablers. But that benefit is concentrated in the hands of the politically motivated few. They will make the effort to push their preferred regulatory scam.
Regulatory scams are very big business. Thousands of lobbyists work in Brussels and Washington. The capitals of the two imperial states of the West are major sales venues for corrupt regulatory production. The appeal of the EU is that you can buy competition-suppressing regulatory protection for your business for a vast market of 500 million people. It is so much more convenient than suborning officials in nearly thirty different countries.
The EU has relied on ‘harmonisation’ via thousands of regulations to create a centralised USSR style European empire under the rule of unelected officials in Brussels. The larger any state is the more difficult it is to suppose that elected officials, still less unelected ones, can be held to account by elections. This is still more so when the state is trying to assimilate nearly thirty subject territories.
The EU is, in effect, implementing Hitler’s fascist playbook in terms of creating an all-powerful state by using massive regulation to suck the life out of property rights and therefore liberty. On the way it is creating a dead weight of cosseted, inert crony corporations.
I am not saying that the EU it is an attempt to recreate a fascist state. Indeed, it seems to be supported by Germany precisely to prevent a recurrence of that disaster. I imagine that the EU will try to retain the appearance of democratic legitimacy as long as possible. It is really just a late-stage Democratic Socialist super-state.with an un-elected, unaccountable politburo in Brussels. Nevertheless, as someone active on the pro-secession side of the Brexit campaign, I was amused by the EU’s insistence on labelling its secessionist opponents ‘fascist’, given its own adherence to a fascist regulatory model.
Big companies want regulations to enable them to rig markets. Their money is very important to politicians and political parties, of course. Not so surprisingly, after the Brexit vote, a recording emerged of a British minister – a member of a government supposedly committed to honouring its outcome – cravenly assuring a director of a big Continental railway engineering supplier that Brexit would not be happening. EU regulation has been an important force pushing up British imports from the Continent. By way of example, EU regulations have been written to require new railway projects to use high tech, complex and expensive computerized systems.
The CrossRail fiasco springs to mind. Over £20 billion has been spent on a through tunnel under London linking east and west railway systems – imitating Paris’s successful RER. Remember the definition of ‘technology’ = stuff that doesn’t work yet. Well the hyper modern EU mandated signalling on CrossRail doesn’t work yet. You can’t take a train through the spanking new tunnel. Brilliant. London is riddled with underground railways operating perfectly happily with cheaper, proven signalling systems. Somehow nobody thought about making CrossRail work, rather than about uncritical regulatory compliance.
And there will be more. HS2 will also rely on an EU style signalling system to move 18 trains each way per hour a lot faster than the French have ever done. Imagine trying to stop them in an emergency. That’s not going to work? Probably not. But it will create loads of signalling equipment jobs and profits, abroad, first making a mess and then sorting it out. On the other hand, the regulatory driven signalling bill will be just a small part of the overall late stage crony corporatist scam that is the £100bn (or more?) HS2 project.
Few people see the damage done by regulation in terms of lost futures of prosperity. But they do notice the accelerating stagnation of living standards and their diminishing prospects. And they resent corporate and banking elites who seem to be profiting – indeed are profiting in many cases.
The additional weight of environmental regulation is pushing down on weakened societies in Europe. They are intended to sacrifice the possibility of high standards of living for the masses, based on the use of energy dense hydrocarbon fuels, in favour of unaffordable and unreliable alternatives. The beneficiaries? Elite bureaucratic control agendas for a start. And then there are the countless ‘green’ crony corporatist scams enforced by climate alarmist regulation. The most obvious is unreliable renewable energy. It can only be countenanced as long as high energy density hydrocarbon or nuclear fuels are still available to build wind farms and solar panels.
Renewable generation typically cannot work unless nearly equivalent amounts of hydrocarbon capacity, normally gas fired, are built to be used when the wind or the sun stops. It can never be as inexpensive as just using the gas-powered stations full time. That’s why electricity customers here are paying over the odds for power, for no reason, environmental or otherwise. The surcharge is quite unfairly siphoned off to uneconomic projects and their politically connected developers and privileged landlords. Energy costs are fundamental to living costs. Needlessly driving them up fpr most people is not helpful to say the least.
The point is that regulation is extremely damaging. When there is enough of it, it can stop and then reverse economic progress, especially in tandem with heavy taxation and reckless money printing. That is the combination we face now. It is all a waste, even if it does line the pockets of political parties and crony capitalists. So, what is the solution?
The hidden damage done by regulatory theft and bullying is one of the best arguments for getting rid of the state entirely. Narrowly focused interest groups are just too determined and potentially numerous for even a hypothetically well-intentioned government to counter. The solution is liberty, as understood by NAP (Non-aggression Principle) loving libertarians. And, therefore, no state, at least as we know it.
That means law, not regulation. Regulation is not law. It is a principle of Natural Justice that law that is too complex to be comprehended is no law at all. Thousands and thousands of regulations are certainly too complex for people to be expected to abide by them. A simple, easily understood system of law based on the NAP, for example the original English Common Law, is enough, suitably interpreted and refined by the courts, for the needs of a free society. And it is sufficient to eliminate any perceived excuse for spirit sapping regulation.
Murray Rothbard’s ‘For a New Liberty’ contains an example of the ability of the Common Law format to create an effective framework for property rights in the context of new technologies. It also strips bare the motivations behind state regulation.
In the 1920s the new technology of radio broadcasting resulted in hundreds of radio stations being set up across the United States. Naturally some used the same frequencies. Interference resulted, followed by litigation. Broadcasting spectrum had suddenly become a meaningful idea, and a thing worth owning.
It was being ‘homesteaded’ by pioneer broadcasters. It is a key libertarian principle that in a free society everything is owned by somebody. Unless it is virgin territory, for example a newly discovered island, or in this case a bunch of wavelengths nobody had known even existed. In the case of new ‘land’ the discoverer can homestead it. The owner is the first man to ‘mix his labour’ with it. Planting a flag won’t do it. Digging a garden or enclosing some stock with some serious intent is more the sort of thing envisaged.
Then it’s for the courts to decide the extent of the new property right. Does running some sheep by the beach in Australia give you a claim to the entire island continent or just to a viable range. How large might that be?
Did broadcasting in the USA on a frequency give you homesteading ownership of that wavelength everywhere? Well, as legal cases were decided a wholly independent system of property rights in the spectrum was coming into being. The radio industry was growing rapidly. As usual in a free society, it included a variety of different offerings in different markets, including at least one libertarian broadcaster.
Oh, but surely, you may think, only the state could or should regulate the allocation of radio spectrum in the national interest, etc. etc. And indeed, the Congress of the United States was alerted to the danger. A congressional report revealed that the independent radio industry was rapidly sorting out its property rights issues without reference to politicians. If no action were to be taken there would soon be no need to intervene. That is, there would be no opportunity to meddle, I mean, regulate.
Faced with such a desperate situation, a regulatory body was hastily put together so that radio broadcasters – and the TV stations on the horizon – would have to engage in the same old regulatory dance. Corrupt politicians (but I repeat myself) would be able to solicit donations and favours. Station owners in return would be able to exclude smaller competitors and establish monopolistic cartels at the expense of consumers and advertisers.
Famously dire and banal American TV (and quasi Marxist offerings in Britain) have been the result. As has slavish devotion to the political class’s self-serving narratives. These are the results of not letting the legal system of a free society prevail. What about the libertarian radio station you ask? Yes, it got closed down. Now the internet again offers a real variety of views and opinions. Let’s hope it proves too difficult to regulate.
So, OK, we can have too much regulation Alan, you may say. But surely there must be some mind-numbing, costly to comply with, obnoxious rules and requirements in a free society? Well, yes, but only to the extent that people freely cooperating with each other find necessary. Inflict too much paper work on other people and they won’t want to deal with you – and in a free country you can’t make them.
The place where detailed rules will appear in a free society is in voluntary business agreements. The most common example will, I think, be insurance agreements. In a free society you cannot be made to take out insurance policies, or indeed made to do anything else (apart from desisting from initiating violence under the NAP). But you would be mad not to insure yourself against having to make restitution payments because of your guilty actions, negligence, or just plain bad luck. It is doubtful anyone would be wise to do business with you unless you were so insured.
Insurance companies (and possibly mutual societies or specialist security firms) would also insure you against losses from criminal attacks on your person or property. Crime insurance might be routinely added to your house or car insurance.
Detailed rules would be included by insurance companies in policy conditions. They would likely include avoiding proscribed behaviours, such as hang gliding or provoking attacks. You might have to install certain equipment, for example fire alarms, security cameras and locks. A commercial agreement for a large business would naturally be a great deal more elaborate. But then risk and uncertainty are unavoidable. Managing them is a most serious business.