Federal regulators increasingly pretend they are corporate CEOs
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A successful local restaurateur decided to expand, so she acquired another restaurant across town. Thinking she could improve the food and enlarge her business, she headed to city hall to get the necessary licenses and permits. The city clerk told the restaurant owner she had complied with all the laws, but before issuing her updated permits, he wanted clarity on a few things.


The clerk said, "I think we also need a new restaurant on the south side of town; you will open one there as well, won't you?" He continued, "And this isn't actually part of the health code, but I think every restaurant needs to offer a vegan option; you will, won't you?" The clerk observed, "Most restaurants offer seniors a 10 percent discount; I prefer 20 percent, don't you?"

The restaurateur got the picture: Do all the things the city clerk wanted or give up on the new restaurant.

This is a classic example of the rule of man rather than the rule of law. It leads to cronyism, and experience and academic studies confirm that it leads to lower economic growth and less prosperity.

While we may not think this happens in America, substitute "federal or state government" for "city clerk" and "corporation" for "restaurateur," and sadly it is a pretty accurate picture of what many companies face today when seeking regulatory approval for a merger or acquisition.

Lest you think I exaggerate, consider the conditions the Department of Justice (DOJ) and the Federal Communications Commission (FCC) announced as part of approval of the Charter Communications/Time Warner Cable merger.

To win approval, the new company must agree to abide by certain "business conduct rules," including refraining for seven years from charging customers based on their data usage; abiding by the FCC's net neutrality rules even if a court strikes them down; building out their broadband network to 2 million additional homes, including 1 million homes which already have broadband access; and hiring an independent monitor to ensure they comply with all the government's various demands.

These types of conditions are increasingly common.

  • As a condition of approving the proposed Aetna-Humana merger, Florida required the insurer to expand its coverage in certain counties covered by the state's health insurance exchange. With insurers threatening to leave the federal exchange, might federal regulators expand on this idea?
  • Regulators required, as a condition of approving the AT&T-DirecTV merger, that the company offer discounted broadband to low-income consumers even though the analysis revealed that the merger would have very little effect on broadband prices. As a dissenting FCC commissioner noted, "the Commission just can't pass up an opportunity to push its own objectives, even if it is unrelated to the matter at hand."
  • To secure regulatory approval, Comcast and NBC-Universal promised that 10 NBC-owned TV stations would produce an additional 1,000 hours of original, local news programming — a requirement completely divorced from maintaining competition.
  • The DOJ required Google, as a condition of acquiring a software company that provided tools to search online for airfares, to continue funding research and development related to the existing software and to promise to develop the next generation of software. Google is required to allow the government to interview their employees about compliance for five years.

This is not mere coincidence. It is intentional.

In 2011, DOJ released updated merger guidelines which, in a significant departure from prior guidelines, embraced so-called "conduct" remedies as opposed to traditional divestiture remedies. While divesture is designed to avoid monopolies, conduct remedies literally allow the government to control the conduct of a company as a condition of approving a merger or acquisition.

This shift is a product of the view that it is appropriate for administration officials to use the regulatory tools at their disposal to achieve policies that they cannot achieve through normal democratic channels.

In some instances, companies have determined that the benefits of the merger or acquisition outweigh the costs that result from the government's conditions. In other instances, government conditions have made a transaction economically unfeasible.

Because we are mostly talking about large businesses, there is a temptation to dismiss the impact of all these extra-legal mandates. But when a government regulator makes your cable company give other people a discount, your monthly bill is a bit higher.

So what is the collective impact of all these kinds of mandates and the increased uncertainty about what the government will do next?

Numerous studies indicate that poor countries can improve their rate of growth by increasing their adherence to the rule of law, including impartial and predictable enforcement of the law. It is likely that the inverse is true as well; the more a country substitutes administrative edicts for democratically promulgated laws, the greater the drag on the economic growth.

Given that personal wage growth is so directly tied to economic growth, American families cannot afford to keep going down the current path any more than our local restauranteur can afford to be micromanaged by the city clerk who thinks he knows how to run a restaurant.

Bradley is chief strategy officer of the Conservative Reform Network and president of Chartwell Policy Solutions. He previously worked in the senior staff for three Republican House leaders and served as executive director of the Republican Study Committee. Follow him on Twitter @NeilBradleyDC.