False Economy: Writing the Rules of the Toy Game

February 5, 2009

  

One of the most misunderstood concepts regarding anti-statism is the argument that minarchy or, even more so, anarchy, agorism, etc, will lead to the further empowerment, if not outright takeover, of large corporations.  Implicit in this argument is that the state protects us from such corporatism on a grand scale and that the state serves as some form of buffer between the people and the impersonal, amoral corporation.

 

In fact, as I argue in The Corporation and the State in a Regulated Economy , the opposite is true.  A strong, assertive state playing an active role in a regulated economy encourages the growth of large corporations at the expense of local and regional small business.  True deregulation of the economy has a localizing effect on business, as

1) the exponential growth of corporations is not incented,

2) corporations lose their active role in lobbying for and in many cases drafting regulations,

3) labor pools are localized rather than internationalized,

4) large corporations lose economies of scale as it regards sourcing cheap raw materials and labor and, as a result of this,

5) price variations between large and small producers are minimized, favoring quality over price as it regards consumer behavior.

 

An outstanding example of this recently came to light in the DC Examiner  (and thanks to Matt Hawes at the Campaign for Liberty for pointing this out). 

Thousands of self-employed businessmen, artists, and boutique owners who make or deal in hand-crafted children’s toys, clothes, or furniture could be out of work next month. A 2008 federal law, with the salutary-sounding name “Consumer Products Safety Improvement Act”, could drive these craftsmen out of business.

Big toymakers, who helped write the bill, are ready for the regulations that will go into effect Feb. 10, while smaller toymakers look likely to suffer. It’s another example of how Washington, when it regulates an industry, often helps the biggest businesses in that industry while crushing the smaller guys.

The key phrase here, as we have seen in many such cases, is large corporations lobbying for and helping to write part or most of the bill. 

This toy story begins in the summer of 2007 when toy-making goliath Mattel was thrice forced to recall products made in China after discovering dangerous levels of lead. That fall, as Congress took up the bill reauthorizing the Consumer Products Safety Commission, consumer groups pushed for stricter safety standards on toys and other children’s products.

In September 2007, Sen. Mark Pryor, D-Ark., introduced a bill in response to the lead-in-toys scare. The bill became law in August 2008, making it illegal to sell children’s products—toys, furniture, clothes, et cetera—that have not undergone third-party testing for hazardous materials.

As I pointed out in past columns, here we have a large corporation producing goods under slave-labor conditions in a heavily regulated, authoritarian state (in this case, China).  These goods turn out to be hazardous and/or to contain known contaminants.  As such, the state (ours) must ‘do something’.  So the lobbyists draw up a bill that is signed into law.  The bill adds layers of regulation to small, local craftsmen, makers of wood toys, etc, and creates further barriers to entry for new producers.  The costs of such ‘third-party testing’ can be absorbed by the corporation, but effect the small producer disproportionately.

This third-party testing portion of the bill goes into effect Feb. 10, which has small toymakers up in arms. The Handmade Toy Alliance is one of many groups mobilizing to keep the CPSC from destroying artisan toymaking.

Large manufacturers who mass produce toys or children’s furniture will face some added costs from the bill, but these are costs they can bear—especially because the costs will be industry wide thus passed onto consumers.

Exactly.

A stay-at-home mom who sews children’s dolls on the side or a small woodworker who sells a few child-sized chairs each year will find these regulations much more burdensome if not impossible.

The CPSC staff has proposed a rule that would exempt from the testing requirement products made solely of “unadulterated,” unpainted, unfinished, and untreated wood, “natural fibers,” gemstones, or other “natural materials.” This rule, if approved, will not be finalized for months, while the testing requirement becomes effective in two weeks.

The proposed rules would allow small local and regional producers to remain in business.  Failure to pass these rules quickly will eliminate local competition and exacerbate the dynamic that leads to corporate regulatory favoritism in our highly regulated economy.

As I pointed out in my original piece on this subject, corporations recognize the advantage they have in helping to create regulation that favors their business model and in many cases actively lobbies for such regulation:

Is this disproportionate impact on the smaller businesses an “unintended consequence,” as many now say? When you look at the lobbying records, it doesn’t look so.

Mattel—whose leaded toys kicked off this whole scare—beefed up its lobbying effort when the legislation appeared. The company’s lobbying budget, which had been steady at $120,000 per year from 2002 through 2006 ballooned to $540,000 in 2007 and $650,000 in 2008—a 442% increase from two years earlier. 

In late August 2007, Mattel, the largest toymaker in the world, hired a new lobbying firm, Johnson, Madigan, Peck, Boland & Stewart, to lobby on the bill. One of their lobbyists on this issue was Sheila Murphy, recently the legislative director for Sen. Amy Klobuchar, a Democratic member of the Commerce Committee’s Consumer Affairs subcommittee. Klobuchar became a cosponsor of the bill in late September 2007.

Hasbro, the world’s No. 2 toymaker, had never had a Washington lobbyist, according to federal lobbying filings, before October 2007, when the company hired the Duberstein Group, headed by Ken Dubertstein, the former White House Chief of Staff under Ronald Reagan. Since then, Hasbro has spent $500,000 on lobbying.

But these industry giants weren’t resisting regulation—they were embracing it. Carter Keithley, president of the Toy Industry Association—of whom Mattel is the biggest member—told this columnist “we were early proponents of adopting mandatory laws to require toy testing.”

A popular myth states that corporations hire lobbyists and spend vast sums on Capitol Hill to ‘protect’ themselves from the adverse effects of regulation.  In point of fact, in our corporatist state, these corporations are active participants in drafting regulation and cynically use such opportunities to protect their favored positions –again- at the expense of local craftsman and small business.  But the author sums it up best:

Regulation proponents usually say anti-regulation types are shills for big business. Washington’s toy story makes that claim look even more like make-believe.

Pushing aside the ‘make-believe’, we see that corporations and the state are closely aligned with each other, serving each others best interests.  A large, powerful state ensures regulation.  Large, powerful corporations are ensured access to the state in drafting such regulation.  The end result is a win for both parties: the state expands its role in the economy, and hence its power to further tax and regulate.  The corporation is protected from competition by the state and its power to police and enforce regulations.  The end result is the dominant, corporatist paradigm and false economy for the consumer whose array of choices is reduced.  Further, this false economy manifests in the preponderance of cheaply made, disposable goods over the quality and value of local materials and craftsmanship. 

We are told, by the corporations and the commercial media they own and control, that consumers opt for such cheap products based on price, that local producers and distributors are put out of business because they ‘cannot compete’.  This is half true- certainly such local businesses cannot compete when the rules of the game are written by corporations, in collusion with the state.  But the former myth is more insidious – so much so that many accept it as gospel.  And herein lies the false economy: that cheaply made goods, of low quality materials unsustainably sourced in third world hell holes, and crafted by near-slave labor under the watch of heavily authoritarian regimes, are inherently ‘better’ or ‘more favorable’ than goods produced locally of high quality materials.  To notion that consumers have a ‘choice’ here, and have ‘chosen’ the cheaply made goods based on price, suggests a profound misunderstanding of the dynamics at play.  In fact, such a notion suggest ulterior motive by its proponents.  Very few Americans have a ‘choice’ here because of the very regulations that serve as barriers to entry, and affect the costs of the local producer disproportionately to the large corporation.

That this example of anti-competitive legislation happens in the context of a lead-in-toys problem that was the result of the corporate production dynamic serves as a warning.  The capacity for cynical manipulation of the regulatory environment by both the corporation and the state should not be underestimated.   Examine the motive and ask yourself: who wins here?  In the end, both as consumers and potential producers, Americans lose. 

 

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One Response to “False Economy: Writing the Rules of the Toy Game”


  1. […] takeover of small business well underway in our country today, previously discussed here and here.  Yet another example of the very corporations that caused the problems the state is now looking […]


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