Knowledge And Decisions

Many of the most extreme examples of employing unnecessary labor — “featherbedding” — are found in regulated industries. Duplicate crews for handling trains on the road and handling the same trains when they enter the railroad yard, retention of coal-shovellers or “firemen” after locomotives stopped using coal, and elaborate “full crew” laws and practices are among the many financial drains on the American railroad industry, which is financially unable to keep its tracks repaired or maintained in sufficiently safe conditions to prevent numerous derailments per year and the spread of noxious or lethal chemicals which often accompany such accidents. The managements of such financially depleted railroads have likewise enjoyed extraordinary financial benefits, including many of questionable legality. To explain this by individual intentions — “greed” — is to miss the central systemic question: Why can such greed on the part of both labor and management be satisfied so much more in this industry than in others? The incentives and constraints of regulation, compared to those of competition, are a major part of the answer.

Regulation spreads not only because more regulatory agencies are created to regulate more industries, but also because existing regulatory agencies reach out to regulate more firms which have an impact on their existing regulated industry. The FCC’s reaching out to include cable TV or the ICC’s reaching out to include trucking are classic examples of regulatory extension of the original mandate based on the original rationale to include things neither contemplated nor covered by that rationale. The tenacity with which regulatory agencies hang onto existing regulated activity is indicated by the ICC’s reaction to the exemption of agricultural produce from its regulatory scope. It ruled that chickens whose feathers had been plucked were no longer agricultural but “manufactured” products — as were nuts whose shells had been removed or frozen vegetables.⁴²

Competition may be restricted not only by direct control of the necessary legal papers required to enter a given industry but also by control of subsidies in an industry whose whole price structure requires subsidy for firms to survive. The American maritime industry, for example, has such high wages and inefficient union rules that its firms cannot survive without massive government subsidy. A firm which is denied such subsidy simply cannot compete with the other firms that have it, because it will have to charge its customers far more than the subsidized firms charge. The Federal Maritime Board determines who gets how much subsidy on which routes, on the basis of its decisions about the “essential” nature (“need”) for those routes.⁴³ Both the maritime industry and the maritime unions are heavy contributors to both political parties, insuring the continuance of such arrangements regardless of the outcome of elections.

Not all governmental restrictions on competition take the form of regulation in the classic public utilities sense. There is much regulation of particular markets such as various agricultural and dairy-product markets, under a variety of rationales having nothing to do with “natural monopoly” or consumer protection. The usual effect of such restrictions is to raise product prices, and in many cases it is rather transparent that that was the intention as well. Sometimes these government interventions go beyond generalized price fixing to, for example, setting a different price for milk for each of its various uses. The terms of the trade-offs of yogurt for cheese or ice cream, etc., are not allowed to be conveyed by prices that fluctuate with consumer demand or technological change, but are fixed politically and therefore distort knowledge of economic alternatives.