Thom Lambert headshot

Wall Chair in Corporate Law and Governance
University of Missouri Law School

Thomas A. Lambert is the Wall Chair in Corporate Law and Governance and Professor of Law. Professor Lambert’s scholarship focuses on antitrust, corporate and regulatory matters.

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Businesses Clamoring for More Regulation — It’s Like Rain on Your Wedding Day.

Within the last few days, the nation’s two most prominent newspapers have reported an interesting trend: businesses are seeking more government regulation. On Sunday, the New York Times ran an article entitled In Turnaround, Industries Seek U.S. Regulation. Yesterday’s Wall Street Journal featured Food Makers Get Appetite for Regulation.

Some might argue that this is a bit ironic. But it’s not. Like rain on your wedding day or a black fly in your Chardonnay, businesses’ clamoring for regulation is not ironic at all. Yet it is, like those occurrences, an awfully unfortunate situation.

An event is ironic, of course, only if there is something about the circumstances in which the event occurs that makes the event particularly unlikely or peculiar. To quote the great Mo Rocca (dissecting Ms. Morissette’s little ditty on VH1’s “I Love the 90s”):

Irony is the disparity between what you expect will happen and what does happen. So raining on your wedding day isn’t ironic; it’s just crappy. It would have been ironic if she had lived in a place like Seattle and traveled to the desert of Mexico for a wedding, and it ended up raining there, but not in Seattle.

Businesses’ clamoring to be regulated, then, cannot be ironic, for it is to be expected. Indeed, both the NYT and WSJ articles pointed to at least four reasons we’d expect businesses to pursue governmental regulation.

First, businesses want to avoid a multiplicity of rules. As a tomato grower states in the WSJ article, “We don’t want 50 different standards, but that’s what’s happening right now.” Federal regulation preempting other rules could simplify compliance for businesses.

Second, businesses want to avoid products liability suits. If it’s cheaper to comply with regulations than to defend, settle, and pay claims on lawsuits, businesses are better off procuring regulations that offer liability protection in exchange for compliance.

Third, businesses can procure regulations in order to achieve advantages over their competitors. In the last few years, American consumers have had access to an unprecedented number of low-priced, high-quality foreign goods. By convincing the government to mandate the production processes they currently use (or could easily adopt), incumbent domestic businesses can both erect barriers to entry and raise the costs of those rivals that do manage to enter the market.

Finally, businesses might seek regulation in order to boost consumer confidence in the products they sell. This is the theme emphasized by the president of the Grocery Manufacturers Association, who told the WSJ, “We need to have consumer confidence in the food products.”

These four “stories,” each related in both the NYT and WSJ articles, show that demanding to be regulated — like rain on your wedding day — isn’t at all ironic. But — like rain on your wedding day — it’s still unfortunate. Why do I say that? Because only the third story above — an unfortunate, anti-consumer story — can explain this current clamoring for regulation by potential regulatees.

The first story (“We’re doing this to avoid a multiplicity of rules”) isn’t convincing because the standards at issue aren’t being imposed by states and thus wouldn’t be preempted by federal regulation. As the WSJ noted, the conflicting standards have been set by private actors — “[B]uyers from Wal-Mart Stores Inc. to McDonald’s Corp. and Walt Disney Co. are requiring different safety standards and independent inspections.” Federal regulation wouldn’t change this, unless the regulatees could convince buyers to drop their different standards in favor of the uniform federal one. But couldn’t regulatees just as easily convince buyers to adopt a common, privately-crafted standard? It seems a multiplicity of standards could be avoided without imposing mandatory, government-crafted rules.

Voluntary standards could also be used to boost consumer confidence (story #4) and reduce products liability suits (story #2). Private certification agencies do a terrific job of guaranteeing quality and sustaining consumer confidence. The entire kosher food industry, for example, thrives without any governmental regulation of kosher status. And if reduction of tort liability is the real concern of businesses seeking regulation, they could ask legislators and regulators to promulgate consumer-protective, non-mandatory standards, compliance with which would immunize them from tort liability.

But the businesses begging to be regulated aren’t taking that tack. Instead, they’re seeking mandatory government regulations. Such mandates, which wouldn’t avoid a multiplicity of standards and wouldn’t be necessary for either consumer confidence or tort liability protection, would be both necessary and sufficient for another end: raising rivals’ costs. Thus, story #3 is most plausible.

And that should worry us, for when profit-maximizing businesses can enhance their market power (and thus their profit margins) by harnessing the power of the state to reduce competition, consumers lose. As Mo Rocca might say, organized industry’s attempt to do so “isn’t ironic; it’s just crappy.”