It may come as a surprise to some to learn that business owners and capital investors are evil people--not in any specific or particular sense (as Marxists believe) but in the general sense of universal human depravity shared by all human beings, born and unborn. This general truth is at the core of the Christian faith, being explicitly declared in Holy Writ, (Romans 5:12-14) and professed in its creeds and confessions (for example, ". . . all mankind descending from him [Adam] by ordinary generation, sinned in him and fell with him in his first transgression." [Shorter Catechism, Question 16].
Business owners and capital investors share, along with all men, the blight of universal human depravity. Therefore, it is a reasonable expectation that given half a chance they will take any opportunity to advance their own position, wealth, and well-being at the expense of fellow men.
(There is an alternative, ethical way to advance their position--by providing people, consumers, purchasers with what they need and desire at a price they can afford. But producers and business owners are always under temptation to go over to the dark side and extort money rather than earn it.)
Adam Smith famously warned that business people should never be trusted. As soon as a group of them get into a room, hardly a minute will have passed before one of them suggests a conspiracy or collusion to defraud the public. The reason we should expect this is due to universal human sinfulness, in which business people share. Business people are evil--along with everyone else in this fallen world.
One of the most common and effective ways for business people to defraud the public and damage society at large is to ally themselves with government and its regulators. In an open market, businesses can only survive if they successfully produce and offer desirable goods at an affordable price. In a regulated market, businesses twist and turn to position themselves next to the regulator (politicians, legislators, bureaucrats) to ensure the rules and regulations disadvantage their competitors but give themselves market advantage. As Milton Friedman once observed, business people earnestly desire protective regulation for themselves, and relentless open, free competition for all their actual and potential competitors.
One of the world's most successful investors, Warren Buffett has made no secret of desiring to own monopoly or quasi-monopoly businesses. At least he is honest and transparent about it. If it is a government enforced monopoly, so much the better. Economists talk about rent-seeking--achieving a position of sitting at a monopoly causeway, clipping tickets as traffic passes for a fee, with no need to add value in any way and under no competitive pressures. Unions, by controlling the supply of labour and raising high barriers to new labour market entrants by means of rules, regulations, and labour laws in the union favour, can become monopolistic rent-seekers. But evil business owners can do the same.
Activist, interventionist governments and their armies of regulators and regulations are a corrupt businessman's best friend. They constantly agitate to skew the pitch to their advantage. The most common method is to seek government rules and regulations for their industry which have the effect of socialising costs, reducing competitive pressures, and raising barriers to new competitors coming in to take away their customers. (Adam Smith, we recall, argued that the only effective way to control the venal, self-serving conspiracies of business owners is to ensure they are faced every day with relentless competitors. It is competition alone which will keep the beggars honest, he said. Government rules and regulations are a patsy, easily perverted to anti-competitive protection. He was so very right.)
In New Zealand it has recently been alleged that an anti-competitive rort had just been perpetrated upon the public by some of our largest corporates. It has been leveraged off effective government control of the telecommunications and internet industries. The government contracted a former state-owned enterprise (Chorus) to roll out an ultra-fast fibre network to every home in NZ. The government put out tax payers' money; Chorus put up the rest. Chorus's business model called for maintaining high monopoly rents on the existing copper network (which it owns) to cross-subsidize and fund the new fibre network.
It has been alleged that a number of downstream business users of the copper network, plus ordinary consumer organisations, together with a gaggle of economically ignorant, but populist politicians ran a public campaign to get Chorus's monopolistic high rents for using the copper network reduced. The government regulator, the Commerce Commission dutifully complied and by regulatory fiat substantially reduced the prices Chorus could charge for accessing its copper network. The promise was lower internet charges for every consumer accessing the copper network (which is just about the entire country).
But there was an immediate downside: the Chorus business model has been exploded to smithereens. It can no longer fund its investment in the fibre network. But more sinister machinations have now been alleged--which would come as no surprise to Adam Smith. Vodafone (and other internet service providers--"ISP"'s) have reaped an immediate benefit. Suddenly their costs of doing business have been lowered substantially as a result of the Commerce Commission's new price controls. Chorus is required to lower its charges to ISP's. But it has been alleged that Vodafone has been a covert funder of the public pressure against Chorus (initially denied, now confirmed) and that it has no intention to pass its cost reductions along to its customers. Thus, windfall profits for Vodafone will come tumbling down the copper lines. Oh-so-smart conspiracy, that. And, as is always the case when business conspires against the public, it is the customer who suffers, to the benefit of anti-competitive business owners.
New Zealand's most widely read news blog, Whaleoil has alleged that the public campaign against Chorus was not just funded by internet service providers talking up their own book in their own favour, but worse, it falsely promised that households would immediately benefit from their internet access costs dropping $150 per year, as savings were passed on to consumers.
It has been confirmed that the campaign against Chorus was secretly funded by Vodafone, according to the NZ Herald which has been very reticent on the topic of passing on the windfall gains to their customers:
Communications Minister Amy Adams has opened fire on Vodafone, saying the telecommunications giant silently backed the so-called "copper tax" coalition but left consumer groups and smaller New Zealand firms to front the campaign. Vodafone, which publicly distanced itself from the Coalition for Fair Internet Pricing following pressure from the Beehive, has confirmed it undertook to give financial support to the campaign.
But Ms Adams told the Herald consumers "shouldn't be getting too excited about the prospect of prices falling as a consequence of this any time soon". She noted big telecommunications companies (telcos) had given no more than vague indications of savings for consumers. Between them Telecom and Vodafone have about 80 per cent of the broadband market.
No doubt this is not the end of the story. No doubt some of Vodafone's ISP competitors will pass on the cost savings and will eat into Vodafone's market share as a result. Probably Vodafone would be thus forced to lower its own charges over time. One competitor (Orcon) has already promised to cuts its own charges to customers as a result. Excellent. Smith was right: it is competition which will keep the pillagers relatively honest.
The whole saga reminds us that business is not to be trusted and that business people are reflexive monopolists and therefore willing conspirators to their own advantage and to the disadvantage of their customers and competitors. It underscores how business loves to cuddle up to government bureaucrats and regulators to queer the pitch in their own favour. It reminds us that competition is the best way to keep business on the relatively straight and narrow. It further illustrates how government regulators and politicians can also be so easily suborned to the dark side.
In summary, the starting assumption needs to be that business and capitalists are sinful and compromised with self-serving motives. Therefore, industry associations and their pressure groups almost always represent collusions and conspiracies against competitors, new market entrants, and customers, even as they cloak their activities with motherhood statements about the common good and consumer welfare. Secondly, we must always remember that corrupt business in principle welcomes government rules, regulations, and wage and price controls for their industries as a protection from relentless competition. Thirdly, we must never forget that competition is the best disinfectant to keep business and investors honest. Finally, we must remember that that politicians are so often complicit in these dishonest, anti-competitive activities for their own populist, electoral gain.
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