Monday, May 23, 2011
By Paul Martin

By Attorney Jonathan Emord
May 23, 2011

President Obama’s government depends on the merger of big government and large industry through a classic quid pro quo. In exchange for industry leaders ceding to the government control over critical aspects of their business, the government erects anti-competitive regulatory barriers to market entry, thus giving the industry leaders above-market rates of return. The deal works well for the government and big industry but harms all others.

The President’s health reform law forces all Americans to buy health insurance, causing the insurance industry to experience an enormous windfall, adding upwards of forty million people to the ranks of the insured. In exchange for that massive increase in revenue, the government expects health insurers to offer qualified plans approved by the Secretary of Health and Human Services. In short, the government has bribed the industry into a cooperative relationship. Small insurance firms stand to lose out because they will not be able to afford compliance with all of the regulatory strictures that will be imposed and this too will benefit the larger firms.

The President’s banking reforms have caused the United States Treasury to exercise unprecedented control over lending practices by private financial institutions, turning them into quasi-governmental entities. The President’s reforms have also created a new federal regulatory agency with broad powers over credit card lending and other non-commercial lending. In exchange for cooperating with the government, the affected lending institutions are favored by the regulators, while those who present any opposition are encumbered with regulations that will reduce their ability to lend and compete.

The President’s Commissioner of Food and Drugs has adopted, at the request of industry leaders, Good Manufacturing regulations for dietary supplements. It would have been simple for the government to require finished product testing to prove the absence of contaminants in dietary supplements, but that would give the federal government no leverage over the production, holding, and distribution of the products. Instead, FDA with the enthusiastic support of leading supplement companies chose to impose extremely costly process controls on the industry (regulating every aspect of production, holding, and distribution of the product). By the agency’s own admission, “140 very small and 32 small dietary supplement manufacturers will be at risk of going out of business” when the rules are fully implemented. The FDA estimates that full implementation will sacrifice some “2,500 workers [jobs].” The rules favor big industry (principally pharmaceutical companies that wish to dabble in national supplement sales) to the detriment of smaller firms. Use of the quid pro quo approach replaces a free market with a smaller body of tame regulatees who are pleased to do the government’s bidding.

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