Saturday, October 9, 2010

A Sliding Scale of Government Control

Many conservatives resist calls for greater regulation of the banking industry, presenting such initiatives as an assault on individual liberty. I find their reasoning troubling because they fail to make a qualitative moral distinction between the regulation of large, corporate enterprises vrs the infringement of individual economic freedom. Even champions of liberty and limited government, like Thomas Jefferson, held that banks and corporate entities need not be granted the same rights as individuals. In fact, Jefferson frequently expressed reservations about powerful banking interests. By failing to draw this distinction, segments of the Republican Party are responsible for the widespread belief that being conservative is synonymous with the promotion of corporate interests, rather than individual liberty. A wise strategy would be to adopt a sliding scale of government control, in other words, the smaller and more local the entity in question is, the more relevant questions of liberty become. And accordingly, the more intolerable government control becomes. And conversely, the larger and less local the entity in question is, the more we should frame the debate in terms of economics and general welfare.

For example, we could argue that tightly regulating or even eliminating credit default swaps is an economically unsound decision, however it should not be conceived as an infringement on individual liberty. In contrast, the federal government's plan to coerce individuals to purchase health care is a moral question, is a question of freedom and the liberty. Even if such a plan were to promote greater public welfare, it would constitute undue infringement of individual rights. And Chicago's heavy regiment of taxes, regulations and restrictions on individuals and small businesses should also be conceived as intolerable restrictions of personal freedom. Limiting the economic freedom of a larger corporation or industry may indirectly and modestly harm millions of small investors and consumers, whereas burdening an independently owned business can directly and drastically threaten the livelihood and liberty of individuals and families.

There are practical factors that lend credence to a sliding scale of government control, primarily the questions of risk and externalities. Take the issue of construction. I have personally witnessed the City of Chicago arbitrarily levy heavy fines and verbally berate an individual for constructing a closet in the basement of his own single family home without a permit. This constitutes an intolerable infringement on this individual's rights, because owing to the small scale in question, the risk that his actions would harm or imposing externalities on the public was slim to none. On the other hand, if a large firm were to construct a new building from scratch without permits, the city would be right to fine them, because if ill executed, such a project could pose significant risks to the public. So, conservatives and libertarians should fight tooth and nail to protect the property rights of individuals and families, but should not necessarily extend such concern to larger firms.

Another important factor that is mitigated by scale is the speed and extent to which the market can punish a business for poor quality goods and services. For example, when a local restaurant makes its clients ill, the information will be clearly and rapidly conveyed to the public and if it does not immediately correct its behavior, the company will be rapidly driven out of business. The benefit of this is that other restaurants will certainly alter their behavior to avoid the fate of their former competitor. However, if a company pours toxins into the water, it may takes years for the public to become ill and even longer to determine the source of their ailments. Once the information is known, market mechanisms will either correct the behavior or drive the company out of business, but by then the damage to public welfare would have been unduly high. And to have the government foot the bill for such externalities is the worst (and most prevalent) form of socialism in modern America.

While the restriction of corporate entities should not be treated as a violation of fundamental liberties, we must still take heed; when a city, state or nation imposes heavy tax and regulatory burdens, large firms will leave, taking jobs and opportunities with them. So, be judicious in how you restrict larger firms and be uncompromising in your defense of the rights of individuals and small businesses.

No comments:

Post a Comment