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Facebook’s Zuckerberg will go before Congress soon. Congress should not grant favors

Facebook CEO Mark Zuckerburg returns to Washington this month to testify before Congress on his firm’s plans to issue a cryptocurrency. It’s a tough time for Mr. Zuckerburg to try anything new, because the government is currently investigating Facebook and other technology companies for anti-competitive activities, arguing that the large size of these firms gives them unfair advantages.

But perhaps he welcomes the attention.

If lawmakers and regulators listen to Mr. Zuckerburg, they may very well propose regulations that make it harder for new companies to enter the same industry or sell the same services. Economists call such regulations barriers to entry. The more barriers new entrants must overcome, the less competition there will be.

Executives in these large tech firms today have a strong incentive to practice “crony capitalism,” using the political process to get benefits for themselves. Regulatory barriers, tax incentives, subsidies, or preferential treatment of any type protects firms from competition and hurts consumers.

Further, when the law allows capital to flow to protected industries, economic growth slows. Such funds should be going to new, innovative industries and new employment.

Peter Crabb.jpg
Peter Crabb

Earlier economic writers observed the same problem. When Adam Smith published “An Inquiry into the Nature and Causes of the Wealth of Nations” in 1776, he was very concerned with the government-granted monopoly power of international trading firms operating in his day.

Smith and other early economic theorists taught us how competition in free markets makes nations grow, improving the standard of living for all people. But they also taught us that such economic benefits depend largely on justice and the rule of law. When companies garner unjust protection from competition through favorable government policies, we are all worse off.

In fact, much of the “Wealth of Nations” is devoted to how powerful people used their influence in the government to exploit the poor. Smith knew that such actions were not only detrimental to creating wealth but morally wrong.

In a later part of the book, he provided evidence for how often “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.”

Adam Smith and the other early economists cared about justice for all. Lawmakers must keep justice in mind and be leery of what the managers of big firms ask for when they come to visit.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. pcrabb@nnu.edu

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