Government Controls & Regulations

        I was working on my book, How To Find The Right Business, this week.  The chapter covering Insurance and Government Regulations got me thinking.

        What is the objective of government regulations for business?  The first thing that comes to mind is that it should protect the consumer.  This makes sense, but does it work, and what does it do to business and the economy?  Let me give you a personal experience I mention in my book.

President Nixon imposed wage and price controls in 1971 when I was a Ford-Mercury dealer.  We complied.  A few months later Ford Motor Company raised their price on parts.  Ford raised the price on all parts sold from inventory, newly purchased, or newly manufactured.  Ford had received approval from the Federal Government for this price increase.  Lee Motors, Inc. also raised our price on parts to the new suggested retail price. 

        Within a few months, the Feds came into Lee Motors, Inc. and said we were in violation of the price controls.  They said we could not raise the price on any parts that we had in inventory.  We could only raise the price on parts purchased from Ford after Ford had raised the price. 

        In order to make the Feds happy, we had to go back to the old price.  Then we had to reduce the price of parts we sold below the old price by the same percentage we had increased the price.  This price applied to all parts sold to any customer on a first-come basis until we had reached the volume we had sold at the increased price. 

        We, in effect, gave back any increase we had received.  It obviously did not go back to the same customers in most cases.  We also had to send all kinds of reports to the Federal Government.  The dollar amount was almost insignificant, but the cost to comply cost both Lee Motors, Inc. and the Federal government several hundred times the amount discounted to our customers.

        Did this help the consumer?  Not really.  The discount did not even go back to the same customers in most cases.  Did it hurt Lee Motors, Inc.?  Yes, the cost of record keeping and reporting was significant.  Did it cost the Federal Government and waste taxpayer money?  Absolutely. 

        What good were the wage and price controls?  In my opinion, this type of regulation helps big business.  It certainly did not hurt Ford Motor Company. 

        This type of legislation does hurt small business.  It created problems for and cost Lee Motors, Inc. money. 

        The benefit to the consumer was negligible, and probably negative in the long run.  The reason I say that is that, in my opinion, this type of legislation ends up helping big business and hurting small business.  As small businesses fail and close their doors, there is less competition for big business. 

        This makes sense if we think about it.  Big business can afford to hire lobbyists and make campaign contributions.  They have the politician’s ears and control the politician’s purse strings.  Small businesses can’t afford this.

        Our Federal Government should not determine which businesses succeed and which fail.  This is what bailouts and government controls do in my opinion. 

        I know a lot of people who don’t like Wal-Mart because Wal-Mart hurts the small retailer.  I ask these people to take a closer look.  Much of the reason they don’t like Wal-Mart is because of the Federal Government.  Wal-Mart just plays the game. 

         

I do not think our Federal Government should be involved in picking which businesses succeed and fail.  This hurts all consumers in the long run because of less competition.  I think it a clear violation of the Constitution and the 10^th Amendment.