Business and Regulation

This turned up on EU Referendum earlier in the week of course, now with Christopher Booker (not all that much of a surprise, Richard North is Booker\’s co-author on several books and his researcher at times). The most important part of the story to me is this:

Since these costs will be much the same for her as for a multinational with a turnover of billions, she says: "I do not know how a directive could have been designed like this. The needs of smaller businesses have simply not been allowed for. It is astounding."

The reality seems even worse. It is clear from the impact statement that Brussels knew, when it drafted the directive, that it would put what it calls small and medium enterprises (SMEs) at a significant disadvantage against their big competitors. "SMEs," it admits, "are particularly affected by the directive, while larger companies are more likely to be able to bear the costs of dossier preparation."

One likely upshot of the directive is that many of the 1,000 SMEs in Britain that rely on chemical formulations for their products will be unable to afford the costs (most of them wholly unnecessary – chemicals such as benzalkonium chloride have been exhaustively documented for decades).

Most will be forced out of business. Many useful products will disappear from the market. The cost of developing new, more effective products, in a market where most are low-value and offer only small profit margins, will be so prohibitive that innovation will be stifled.

The only people rejoicing at this example of regulatory overkill are those multinational companies that played a considerable part in drafting the directive.

Yes, we have regulatory capture. The bureaucracy, the real government, asks all sorts of people, in fact anyone with an interest at all, to contribute to their fact finding exercises and calls for opinion. Small businesses of course never respond: who has the time or inclination to wade through millions of pages to find out whether they\’ve decided to screw you this week or next?

Large companies of course have the resources to do so. So it is the views of large companies which prevail in the writing of the rules themselves. Yes, why not, another 20 pages of irrelevant questions: that\’ll stick it to those small companies which are our competitors. Hey, why not make it so complex that there needs to be a whole department in a company to deal with it? Great! That 15 man company down the road can\’t do that now, can they? Damn them for skimming off sales that should rightfully be ours!

You know, if we make it complex enough then they might have to hire specialist outsiders, consultants at £2,000 a day to help them fill in the forms! Excellent, and of course, it\’s all being done for the kiddeeeees!

And thus Marx\’s prediction becomes true, markets slide towards monopoly. But not because of the inevitability of this happening in a market economy, but becuase of the interaction of big government and big business.

Just as an example here, I complained about the restrictions that REACH places upon one of our imports. One Europhile federast said that it was simple, I should simply band together with my competitors to pay the costs of registration and testing of the product.

Erm, I don\’t actually know who all my competitors are for a start. And even if we did, and we combined to get that registration, there is no way that we can stop a new entrant into the market from using that registration without paying for it or contributing to our costs. Given that the cost of the registration is of the order of €100,000 and the whole EU market is worth €500,000 a year, on tight margins, that\’s something of a problem really, don\’t you think?

And this is for a product which is simply two metals mixed together. Lord alone knows what it\’s like for those who supply more complex products.

13 comments on “Business and Regulation

  1. It is noticable how Europe has failed to produce any new big companies over my life time. If you look at America I’d be interested to know how many of the Top Twenty, or 100, companies even existed 30 years ago. (OK GM and Boeing apart) Most of those that I can think of are new comers – Microsoft, Apple, Walmart, Google, Cisco and so on. In the meantime where is Europe? Phillips is older than Karl Marx (supposedly founded by Karl’s Uncle although I don’t know if that is true or not). ICI even has Imperial in the title.

    This regulation is not only killing European businesses. They will, in time, kill the entire European economy. Oligarchy at work.

  2. “I should simply band together with my competitors” – wouldn’t OFT start sniffing at such collusion?

  3. This is of interest to me as I am considering importing a product into the UK and the regulations around getting “approval” is shocking.

    I have said before and I will say it again – Statists and Socialists are ladder-kickers.

    P.s. “One Europhile federast said”

    Tim, what a wonderful word: “Federast”. I shall endeavour to use it regularly.

  4. It is noticable how Europe has failed to produce any new big companies over my life time.

    You’re a raving idiot. Top 10 US companies, 2007:

    Exxon Mobil (est 1870 as Standard Oil)
    General Electric (est 1890 as Edison Electric)
    Microsoft (est 1975 as Micro-Soft)
    Citigroup (est 1812 as City Bank of New York)
    AT&T (est 1885 as Bell Telegraph Company)
    Bank of America (est 1923)
    Procter & Gamble (est 1837)
    Wal-Mart Stores (est 1962)
    Altria (est 1847 as Philip Morris)
    Pfizer (est 1849)

    Top European companies, 2007:

    Gazprom (est 1992)
    Royal Dutch Shell (est 1890 as Royal Dutch Petroleum)
    BP (est 1909 as Anglo-Persian Oil Company)
    HSBC (est 1865)
    Total (est 1924 as Compagnie Francaise des Petroles)
    GlaxoSmithKline (est 1880 as Burroughs, Wellcome & Company)
    Nestle (est 1860)
    Roche (est 1896)
    EDF (est 1946)
    Novartis (est 1758 as JR Geigy)
    Vodafone (est 1982)

    So the top 10 companies in the US and Europe are split between industrials, banks, oilcos and one tech firm; the European tech firm was founded a decade after the American one; all the others are about the same ages.

    The rest of the table is comparable – it’s just that being simultaneously an American and a clueless buffoon (not to imply that all your countrymen are clueless buffoons, just that you are), you’ve got no idea about European industry or companies beyond the whinings of demented libertoonians who believe that Europe is the same as the 1960s USSR.

  5. Actually had a good weekend, thanks.

    Just, it’s one of those serious goat-theft moments when people who know sod-all about what’s actually happening in either economy say that The American Model Is Superior At Making People Better Off Than The European Model Based On [x which isn’t true].

    In case you were wondering, it does also annoy me when they do it the other way round – although that’s rare, because if someone is both ignorant and in favour of the European model, they’ll seldom understand that capitalism and trade are necessary to make us richer in the first place…

    Tim adds: “although that’s rare, because if someone is both ignorant and in favour of the European model, they’ll seldom understand that capitalism and trade are necessary to make us richer in the first place…”

    Erm, yes, regular complaint around here, that one.

  6. Gazprom is Russian?
    Where are all the European startups that go big?
    Microsoft, Google, HP, Youtube etc…

  7. Tim, I recognize the metals story because it parallels one earlier in my experience.

    A partner and I had bought a large quantity of surplus DEET-(n,-n diethylmetatoluamide), the active ingredient in many insect repellants. We wanted to have it private-label-packaged for our own brand (we actually recovered it from gov’t. spray cans) and prepared a license application (requiring information on toxicity, carcinogenicity, etc) by referencing the very same studies and tests done by the government.
    Though the procedures had allowed such reference, the concerned agency abruptly changed policy to insist that new testing be carried out for each new applicant. The justification was that the easier procedures would be “gov’t.-paid subsidy” for new entrants and thus constitute “unfair” competition for existing brands (despite their licences having originally cited the same gov’t. research). The new policy happened precisely as we made application, though I’d have no basis whatever for feeling we were singled out in the matter.

    The further story of “how I beat ‘em and got my license in a single day without any testing at all” is one of coincidence and near-miracle; as I told the packaging company who couldn’t believe it and wanted the details, “I had had recourse to the very highest authority in the matter, whose identity I simply am not at liberty to reveal.”

    But that’s another story.

  8. john b – “You’re a raving idiot.”

    Well yes but I am also right. I noticed that you failed to compare the two lists I mentioned – not the Top Ten, but the Top Twenty or 100. So naturally your comparison is off.

    What is interesting about your table is the Gazprom phenomena – three of those top ten companies look like privatised State owned enterprises to me – Gazprom, Total and EDF.

    Another thing is the wider spread of American companies on your list. Europe is narrower by age with fewer older companies. I assume that war has something to do with that.

    However. None of that is strictly relevant. I looked up a different list of the largest companies in America and Europe. This one:

    http://money.cnn.com/magazines/fortune/global500/2006/countries/U.html

    The second on my list is Walmart – founded 1962. Down at 15 is Home Depot – founded 1978. Verizon – founded 1983 – is at 18.

    I look at this list

    http://money.cnn.com/magazines/fortune/global500/2006/europe/

    And it takes me to position 24 to find Metro and position 32 to find Vodafone.

    Now no doubt I did not check them thoroughly and there are more young companies, but I don’t see them myself. Perhaps you would like to try?

    john b – “The rest of the table is comparable”

    Which table is that then?

    john b – ” it’s just that being simultaneously an American and a clueless buffoon (not to imply that all your countrymen are clueless buffoons, just that you are), you’ve got no idea about European industry or companies beyond the whinings of demented libertoonians who believe that Europe is the same as the 1960s USSR.”

    As someone who is not American, I rather admire this. Got up on the wrong side of bed this morning or do you habitually show the world what a f**kwit you are? Where is there a hint I think Europe is like the USSR?

  9. Why should companies have to “band together with their competitors” to pay protection money to the state? Isn’t the simpler, cheaper and far more fun option simply to abolish these state entities?

  10. Johnb, my rather long reply this morning (which took the two lists that I actually mentioned rather than the one you picked) which showed I was right does not seem to have shown up. I am not going to repeat it.

    Perhaps Tim Worstall has software that blocks posters calling morons f**kwits. Sounds like a good idea.

    For the record I am not an American. Whether I know what I am talking about is a matter for others to decide. Thank you for demonstrating precisely what your opinion is worth.

  11. my rather long reply this morning… which showed I was right does not seem to have shown up.

    How convenient. I look forward to it appearing. And apologies for not taking the top 20 or top 100, I felt that the top 10 made my point.

    Where are all the European startups that go big? Microsoft, Google, HP, Youtube etc…”

    Well, Skype, Bebo, LastFM just to pick three companies from the Internet space that recently sold out for enormous amounts of money. Hell, the last company I worked for was a startup in the early 1990s that sold out for a billion dollars last year.

    And classing HP as a startup is crazy – it’s been going since before WWII, FFS…

    Tim adds: earlier response. Too many links thus spam trapped.

  12. Right – my resonse to the original response:

    Ordering here depends on whether you go by market cap or revenues (I was looking at the FT lists, which go by market cap. IMO market cap is a better methodology, as revenues exaggerate the importance of high-revenue, low-margin businesses like retailers.

    Anyway, from your examples:

    1) Verizon was an existing business (fixed telecoms on the East Coast) that was compulsorily demerged from AT&T, so it’s more like a privatised state industry than a startup.

    2) Carrefour was founded in 1957; Tesco was founded in 1924 but only went from family business to supermarket chain after WWII.

    One thing that does appear to be true is that European startups are more likely to sell to large MNCs once they’re worth tens or hundreds of millions, whereas US startups seem more likely to remain independent.

    However, by the time you’re a tens- or hundreds-of-millions company, the regulatory concerns above aren’t an issue – you’re definitely on the “large firm” end of the spectrum by then, even if you’re not quite Exxon. I suspect the reason for the difference here is more that US stock market investors are keener than European investors to stick large amounts of cash into speculative IPOs from companies with a lot of potential but not a huge amount of cash Right Now…

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