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Fearless Philosophy For Free Minds: Benedict Arnold Outsourcing or Reasonable Business Practices? Part I of III: Government Regulation

Monday, May 29, 2006

Benedict Arnold Outsourcing or Reasonable Business Practices? Part I of III: Government Regulation

In my recent online accounting class, my instructor posed the following question: “Why has outsourcing become a competitive strategy? Provide an example.”

Because I knew my response would be rather long-winded and because I needed three posts over the course of the week to receive full credit for participation, I answered in three separate posts (so I have opted to do the same here). The typical response from my classmates was about how terrible outsourcing is and how these companies do not care about America – the basic b.s. we have heard from the Democratic Party and its willing accomplices in the MSM. I saw this as an excellent opportunity to educate my classmates about capitalism and the other side that they clearly had not heard. This is how I responded…

Government Regulation
Three main reasons outsourcing has become an attractive alternative to manufacturing or providing services domestically are oppressive government regulations, punitive taxes, and trade unions. Many countries outside the U.S. do not have to deal with the same kinds of obstacles. In this first post I'll focus on government regulations.

Businesses are burdened with government regulations such as price controls, minimum wage laws, EPA regulations, OSHA safety standards, and a plethora of other regulations. Perhaps when these regulations were passed by congress or some other government bureaucracy, the people and ideas behind them had the best intentions of the country at heart…but what do we know about good intentions?

Price controls and minimum wage laws are created by government with little or no regard for market forces. Supply and demand always dictate what a good or service will cost. To suggest otherwise, that an act of congress can legislate 'fair prices', is as foolish as suggesting that congress could repeal the law of gravity. In the end, regulations distort the true value of goods and services (Beach and Miles, p.70).

Who could be against protecting the environment or making businesses safer places to work? This is the intention behind the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) but do these government agencies actually make the environment cleaner and workplaces safer? At what cost do these agencies meet their goals? Are the standards enforced fairly among all types of businesses?

As it turns out, the standards are not the same across the board. According to a working paper by Lloyd Dixon et al for The Rand Institute for Civil Justice, because EPA regulations are much more stringent on larger companies than smaller companies, smaller businesses are discouraged from growing and are at a disadvantage because of the costs associated with compliance (p. xiii). Surely this was not the intent of the EPA – to punish growing businesses, but how does unequal laws make the environment cleaner?

Similar problems of unequal legislation likely apply to OSHA and other government regulations as well. While one could argue the merits of price controls, minimum wage, EPA, OSHA, and other government regulations, the fact of the matter is that many countries have no such regulations; American businesses operate at a disadvantage. Outsourcing becomes attractive to business owners who want to reduce their costs from burdensome regulations to have a better return on stockholder’s investments. Upon further analysis, who could blame them?

Citations:

Beach, W, W. and Miles, M., A. "Explaining the factors of the index of economic freedom"

Dixon, L. et al. “The impact of regulation and litigation on small business and entrepreneurship”.

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