Baseball teams, umpires, and government control of companies

“If you knew that baseball teams with winning records tended to be more profitable for their owners than those with losing records - and if you learned that the Baltimore Orioles had just been purchased by the major league umpire's union, would you expect the Orioles to win more or fewer games?

Almost everyone implicitly understands why the umpires should not be allowed to own teams they referee.

In a free-market economic system, the government is supposed to be the referee and not a player. Its job is to set and enforce the rules, but if it is allowed to also become a player, by owning and managing business enterprises, it is unlikely to treat the competing companies fairly, and there will be little check on its own misbehavior.

Congress is now debating whether the U.S. government will create its own national health provider. The government is now the majority owner of the nation's biggest automobile manufacturer (General Motors Corp.), the biggest bank (Citigroup Inc.), and the biggest insurance company (American International Group Inc.). The record of government ownership and/or control of companies in the United States and elsewhere has been one long disaster.

Look at the past year alone. The nation's largest man-made environmental disaster (according to the New York Times) was the coal-ash spill in Tennessee on Dec. 28, 2008, caused by negligence at the Tennessee Valley Authority (a federal-government-owned enterprise). By volume, this spill was 48 times bigger than the Exxon Valdez spill. This September, the government formally took over mortgage giants Fannie Mae and Freddie Mac, whose financial holes were many times larger than those of Lehman Brothers Holdings Inc., WorldCom, Enron Corp. or GM. Fannie and Freddie were both U.S. government-sponsored and -regulated companies that had the implicit guarantee of the U.S. taxpayer.

Yet the companies not only failed, but between them have also left the U.S. taxpayer liable for more than $1 trillion. …
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The American Founding Fathers well understood human nature, and that is why they developed the system of checks and balances for the new republic.
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When government fails to limit its role to being the referee, and also begins to field a team in competition with private parties, the system of checks and balances breaks down. The result - more incompetence, less efficiency, fewer innovations, poorer service and more corruption!”

Richard W. Rahn, “Government grinds the gears”, Washington Times (18 June 2009).

http://www.washingtontimes.com/news/2009/jun/18/government-grinds-the-gears/


Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.