Real estate, alternative real assets and other diversions

The answer to lobbying is laissez-faire

The Economist

The actual first rule of Fight Club is to get your retaliation in first.

It is this which explains the two linked stories today. Why are tech companies employing the likes of Nick Clegg and David Cameron? One is simply awaiting the time when it will be meet to accept the Earldom, both are looking forward to being able to outearn their wives for the first time. What’s the value in actually employing them? The answer is that politics is coming after Big Tech.

So who is getting their retaliation first?

It is possible to construct a world in which the politicians are righteously looking to regulate companies now so important to our new world out of a sense of nothing but duty. If you believe that, I’ve got a bridge you might be interested in…

The real answer is that the political system is looking to take its cut from this new sector of the economy. In that Don Corleone manner, – nice business you’ve got here, be a shame if something happened to it.

That might sound cynical but the correct question about politics is always “Am I being cynical enough?”

Remember, we went through this with the last generation of tech companies as well. Google, a part of both cohorts, and Microsoft famously spent little to nothing on lobbying for years of their existences. They didn’t see the need, as they were able to just get on with the coding and business building without having to kowtow to politicians in Washington DC.

Then politics started to take an interest – how could such a profitable sector of the economy be allowed to escape guidance from those who know nothing about it? – and lobbying expenditures boomed. Including, obviously, donations to those all-important re-election campaign funds.

The employment of superannuated politicians is therefore a reaction to current politicians demanding power over what is happening.

This is simply one aspect, one exemplar, of the wider point about the regulatory state. When everything is regulated in detail then inordinate effort has to be expended in dealing with those attempts to regulate. That comes in several forms.

Firstly, there are those who simply cannot conceive that unplanned voluntary cooperation can lead to an optimal result. That, unfortunately, includes most who go into politics and bureaucracy. Then there are those who simply do not understand the subjects being discussed – ditto.

The really damaging part of this is of course that any regulation can – and almost certainly will – be written to be partial. Not incomplete, but favouring one company or another. Careful thumb placing on those regulatory scales produces the ability to rent seek. Given that economic rents are, by their very definition, enormously profitable this leads to great effort to get those digits close to those scales.

This is why detailed regulations are so damaging. Not so much because they’ll be wrong – which they will – but because they will favour those who influence their crafting. Thus the efforts of the business community are waylaid into competing for the allocation of those newly created rents.






Subscribe to our print magazine now!

SUBSCRIBE