In today’s Washington Post, there is a report that serves of a perfect example of what happens when the state becomes involved in regulating business. It involves the milk industry, which, along with the rest of farming, is one of the most heavily regulated businesses in the country. Those regulations, however, aren’t meant to help the public, they’re meant to “protect” dairy farmers by ensuring that prices remain artificially high regardless of what market conditions might be.

What happens, though, when one producer decides to buck the system and offer his product to consumers below the regulated price ? Well, as the Post report indicates, the heavy hand of government intervenes:

In the summer of 2003, shoppers in Southern California began getting a break on the price of milk.

A maverick dairyman named Hein Hettinga started bottling his own milk and selling it for as much as 20 cents a gallon less than the competition, exercising his right to work outside the rigid system that has controlled U.S. milk production for almost 70 years. Soon the effects were rippling through the state, helping to hold down retail prices at supermarkets and warehouse stores.

That was when a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga’s initiative. For three years, the milk lobby spent millions of dollars on lobbying and campaign contributions and made deals with lawmakers, including incoming Senate Majority Leader Harry M. Reid (D-Nev.).

Last March, Congress passed a law reshaping the Western milk market and essentially ending Hettinga’s experiment — all without a single congressional hearing.

“They wanted to make sure there would be no more Heins,” said Mary Keough Ledman, a dairy economist who observed the battle.

Hettinga, who ran a big business and was no political innocent, fought back with his own lobbyists and alliances with lawmakers. But he found he was no match for the dairy lobby.

“I had an awakening,” the 64-year-old Dutch-born dairyman said. “It’s not totally free enterprise in the United States.”

Apparently not. Needless to say, the dairy lobby, and their allies in Congress got what they wanted. The loophole that allowed Hettinga to sell milk as much as 20 cents a gallon cheaper than the regulated price has been closed, and milk prices have gone back up in the West.

The lesson is clear. When the government regulates a marketplace in this manner, it is inevitable that  participants in the market, in this case big dairy farms, will get involved in the political process to ensure that their interests are protected and those of their competitors (and consumers) are harmed. The regulators, and more importantly the politicians who write the laws, are eager to please the men and women who fill their campaign coffers, so this becomes very easy to accomplish. More importantly, though, Hettinga’s experience demonstrates clearly that regulations like this don’t exist to benefit the consumer at all.
Further thoughts at Cafe Hayek