Screwing With Free Markets

Writing in the Wall Street Journal today (in an unlinkable article) Michael S. Malone describes the a grim new trend in America's business climate: Since the introduction of Sarbannes-Oxley legislation and "Regulation FD" very few companies have decided to go public by making an initial public offering (IPO).

Small price to pay, right? Let's make damn sure those greedy corporate fatcats keep their hands off the retirement funds of hard-working wage earners! (Your supposed to cheer at this point and wave your pitchfork in the air.) The problem is, it's having an effect that meddlesome congressional regulators and their enablers never intended, one that is bad for businesses, for markets, for workers, and even cat food-eating pensioners - so let's put it in bold: It's sending business offshore, discouraging small business, and concentrating more money and power in the hands of larger and larger corporations.

Goodness me, how could that happen? One, because businesses love barriers to entry, which is exactly what Sarbox creates. The large companies complained wholeheartedly about the expense involved in putting in place the medieval, redundant and bizarre financial controls that were required for a public company. But potential competitors, small companies getting larger, must shoulder obscene expenses in order to make a compliant public offering. So guess what? It has become much easier and more profitable to become a London or Hong Kong based business, where investment can take place and jobs can be created in environments that (hmm, funny) have no more or less corporate malfeasance than U.S. markets do today.

But, the Dow Jones looks swell right? That's because - as Malone explains at length - big, public American companies (who have already taken one in the shorts under the new regulations) are finding plenty of companies that are willing and ready to be acquired. These days every startup in Silicon Valley has a business plan that ends with getting asked to the crystal ball by Google, getting bought, and living the fantasy that was most recently exemplified with YouTube. This creates less value for the owners and the public, and it also means that fewer bright minds are attracted to small, startup American business - traditionally the engine for jobs and wealth in America. And, in the ultimate irony - it creates bigger, fatter companies - risk and power concentrated in fewer economic giants.

Markets are not perfect by any stretch of the imagination - but government regulations have an astonishing, paradoxical tendency not just to fail to achieve a stated goal, but to actually create new, worse problems.

Tags: Sarbox, WSJ, Free Markets, Economy, IPO