Business (Surprisingly) Loves Regulation, but do Consumers?

Bloomberg Businessweek just introduced “Bloomberg Government,” a section of the magazine/site that focuses on the impact of government action or inaction on business. The first article in this new section is entitled “The Regulator: Why Business Loves Rules (Really).” Curious, I read on.

The overall claim of the article is that some of the nation’s largest corporations are seeking more regulation, particularly when it is either a boon to their business model or a bane to their competitors. This is not an incorrect statement, but what irks me about this article is the analytical negligence, the refusal to follow the chain to its end.  To illustrate, I call out two examples from the article.

At the beginning of the article, Mr. Lynch mentions that for food companies, increased regulation is a benefit because it helps to put consumers’ concerns to rest. No longer will consumers be afraid of bagged spinach, peanut butter, and eggs because the government will require extra inspection! And that is where his analysis stops. Even if this claim is true, the unresolved question, which Mr. Lynch did not address, is who will pay for the extra inspection? Can we assume that the reassurance of consumers will boost sales to a level sufficient to cover the costs of extra inspection? And will the company be so magnanimous as to cover these costs?

Lynch claims that “larger companies take (the cost) in stride.” The figure stated is that for companies with more than 500 workers, the cost for increased regulation is $7,755 per employee. Do you think that Kraft, General Mills, or ConAgra are really going to just absorb those costs? Having worked “at corporate” in the food industry, having been the one in charge of downsizing the product while upcharging the consumer, I assure you, there is no absorbing, only passing along! You and I will pay for these extra inspections.

The same story is told in example two. Mr. Lynch points out that for companies like OPW Fueling Components, business is booming. This is on account of government regulations requiring service stations to change their underground storage tanks. This is wonderful for OPW, as its president, David Crouse, points out. But do you really believe that Shell, Chevron, or Exxon Mobile will graciously absorb the costs of the replacement of thousands of underground storage tanks? No, it will once again fall on us to cover those costs.

It is not my intention to belittle the importance of having safe food and environmentally protective storage tanks for our gasoline. I merely point out that it is naïve to presume large corporations will absorb the cost of these regulations.

Mr. Lynch did rightly recognize that increased regulation has a profound, negative impact on small business owners. If I have a small manufacturing outfit, and new regulation is going to cost me $10,585 per year per employee, I don’t wonder why so many small businesses have to shut down or (surprise!) pass the costs along to their consumers through higher prices.

So in response to “The Regulator: Why Business Loves Rules (Really),” I say some businesses may love regulations, but do consumers?