A Protection and Extortion Racket, by Robert Gore

In a battle to the death, Og the caveman defeated Thak, becoming the uncontested strongest man in the tribe. He realized his strength presented an opportunity: he would protect the tribe in exchange for its “donations.” The protection/extortion racket (PER) known as government was born. When Og died, leadership passed to one of his sons, the beginning of hereditary monarchy. A few generations later, when everyone had forgotten how Og had become the original king, the tribe’s priests were conscripted to create a legend of Og’s descent from the god or gods. Somewhere in the Og line came a ruler more interested in chasing cavewomen tail than running the PER, and the tribe was either overrun by another tribe or Og’s descendant fell victim to a tribal revolution.

Such is the history of government. It’s essential nature as a PER hasn’t changed over the millennia. Consider a recent article in The Wall Street Journal: “Google’s Close Tie To White House,” March 25, 2015. As the article notes, “Since Mr. Obama took office, employees of the Mountain View, Calif. company have visited the White House for meetings with senior officials about 230 times, or an average of roughly once a week, according the visitor logs reviewed by the Journal.” Did Google honchos Larry Page and Sergey Brin and their minions visit the White House because of their interest in good governance? Doubtful; rather, it appears they were trying to avoid the harsh consequences of one of our government’s many extortion rackets—the antitrust law.

Imagine a law that criminalizes “bad behavior,” with no definition of what constitutes “bad behavior,” and you’ll have a pretty good idea of how antitrust works. Its foundation is the Sherman Antitrust Act of 1887, which declares illegal: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States…” (Section 1) and deems guilty of a felony: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States…” (Section 2). What’s a restraint of trade or commerce, when all contracts and combinations in some sense are a restraint? (A widget a business promises to sell to company A can’t also be sold to company B, thus “restraining” B’s trade.) All business would like their businesses to be monopolies; indeed don’t they bend their efforts to that purpose? (For the record, SLL is striving, so far unsuccessfully, to establish a blogging monopoly. Oh, how the advertisers will love this site if it happens!)

Since 1887, a vast body of arcane antitrust jurisprudence has accumulated, with some practices condemned under some circumstances but not others, leaving the government with wide latitude to extort. A threat of antitrust litigation is enough to shake even the most stout-hearted executives. It is long, expensive, invasive, and tedious, gobbling up many hours of executive time and diverting attention and resources away from mundane matters like running the business. The penalties can range from huge fines to agreements requiring wholesale changes in business strategies and practices to divestitures, which can be so extensive that the business is dismantled. Lured by the prospect of triple damages, private litigants can piggyback on the government’s efforts.

Government extortionists love antitrust because by definition it is used against successful businesses, ones with money. There are a few immutable tendencies in business and politics. In a free market system, monopolies tend to take care of themselves. Monopoly profits attract new entrants who eventually knock those profits and the company that was making them down to size. Politicians tend to take note and “do something” about most business, economic, and financial phenomenon very late in the game. Historically, the government has taken on monopolies at about the same time markets were set to reduce and in some cases eliminate their clout. Remember when IBM was going to rule computers, or when Microsoft, which essentially ended IBM’s alleged monopoly, was going to rule personal computer operating systems? Those apexes were when the government brought its respective antitrust actions against the two companies.

Google dominates the search engine business, so by the political calculus it is ripe for a plucking. The Federal Trade Commission (FTC) began an antitrust probe in 2011. In 2012, Google’s employees trailed only Microsoft’s in donations to President Obama’s 2012 reelection campaign, and Google Chairman Eric Schmidt personally oversaw Obama’s voter-turnout software system. In August of 2012, FTC staff recommended pursuing an antitrust suit against Google’s search engine business and three more suits in other areas. Google hired additional lawyers and lobbyists, there were all those White House visits, and the company’s executives, including its General Counsel, “reached out” to a variety of administration figures, including officials at the FTC. A few weeks after the election, the FTC decided not to file any lawsuits.

The government got what it wanted: extorted fealty from a dominant technology giant (comes in handy when establishing a surveillance state). Google got what it wanted: protection from the government. Of course, protection is a continuing racket, not a one-time thing. Last year, Google spent $16.8 million on lobbyists, triple what it was spending before the threatened lawsuits.

Anyone surprised by this account hasn’t been paying attention. (That’s putting it nicely, and the only reason SLL didn’t say it more harshly is because it is trying to attain that blogging monopoly.) The Google story is a case study in how government, as a PER, really operates. The less, although still pejorative, terms are regulatory capture and crony capitalism. The timeline of regulation, of any type, is invariably the same:

1. Reformers bring some egregious problem to the nation’s attention and demand government regulation.

2. The government regulates.

3. The reformers go on to their next crusade.

4. Regulated businesses, their profits now dependent on the actions of regulators and politicians, spend massively to buy their putative overseers, and to obtain regulations and laws that help them and hinder their competitors.

5. Occasionally, an exposé documents regulatory capture and crony capitalism. The original reformers are either dead or no longer care, people shake their heads, knowing they can do nothing, and the exposes are soon forgotten.

6. The regulated industry, its fate now determined by politics, not markets and competition, becomes ossified, although occasionally market-based workarounds outside the regulated industry evolve.

Viewers with strong stomachs who want to see this progression in real-time should watch what happens to the internet service providers (ISPs) now that they have brought under the public utility provisions of the Federal Communications Act, to promote the egalitarian-sounding wet dream of “net neutrality” (see “The Net Neutered,” SLL, 2/17/15). Soon regulators and politicians will be extorting money and goodies from the ISPs in return for “protection” from their new masters, and the ISPs will be battling, not to provide internet service at a competitive price, but to buy the favors those masters can dispense. Nothing has changed since Og’s day, and it’s a mystery why we persist in calling the cavemen “primitive.”

AN ALTERNATIVE TO THE PROTECTION AND EXTORTION RACKET

AMAZON

KINDLE

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