The Protection Racket

Say you run a restaurant. And say a competitor announces plans to set up shop just across the street. What can you do to minimize the impact on your business?

Well, you could lower your prices. Or you could work on providing better service. Or you could send over a couple of guys who are really good at convincing people it’s not in their interest to compete with you.

Or say you run a personnel company that brings foreign workers into the United States. And say you’re worried about competitors who cross the border without your help. One option is to try doing a better job. Another is to send over about 1500 guys with unmanned aerial vehicles, new forwarding operating bases and $14 million in new communications equipment to tamp down the flow.

President Obama, with support from both sides of the political aisle, will be signing a bill today that allocates $600 million for “border security”. According to CNN, “The bill is funded in part by higher fees on personnel companies that bring foreign workers into the United States”.

I imagine the personnel companies will consider it money well spent. Let’s not lose sight of how ugly this is.

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24 Responses to “The Protection Racket”


  1. 1 1 Dave

    I get that it’s ugly….I’m not quite sure I understand your analogy:

    “Or say you run a personnel company that brings foreign workers into the United States. And say you’re worried about competitors who cross the border without your help.”

    Are you implying that the “Recruitment Lobby” is somehow involved?

    Would love an elaboration for us slow and hungover readers.

  2. 2 2 Steve Landsburg

    Dave: I am saying that the govt has done a major favor for these recruiters and is charging them a fee for it. Of course, I have no insight into who initiated the whole thing (whether the recruiters approached the govt or whether the govt moved proactively). But the effect is the same either way, and I expect the recruiters to be appropriately grateful for the service.

    I don’t think it much matters whether the restaurant owner goes out and hires Benny the Firebug, or whether Benny first burns down the competition and then comes around asking for a reward. We should feel pretty much the same about Benny in either case.

  3. 3 3 justsoblogger

    All goverments protect national business. It is casual.

  4. 4 4 Dave

    Gotcha.

  5. 5 5 Jonathan

    How much less unsavory would it be if the government simply charged all U.S. citizens evenly (or in proportion to their taxes), on the grounds that it is protecting all of us from people who are competing with us to occupy our land?

  6. 6 6 Patrick

    And of course the ‘fees’ will probably represent only a tiny fraction of the 600 million, the rest being funded by innocent taxpayers.

  7. 7 7 Roger Schlafly

    IOW, Congress passed a law that is broadly favored by Americans, and is partially funded by those who benefit the most. Do you similarly complain when highway repairs are paid by gasoline taxes?

  8. 8 8 Josh

    It really is too bad we don’t live in a world that has a centralized government which would allow for us earthlins to move among regions in the same efficient manner that Americans move among states. Oh well…people are just too hung up on “their” country I guess and “their” culture. I realize it’s more complicated than that but always feel the need to vent on this issue.

  9. 9 9 Nick

    Roger —

    There are good philosophical arguments for the legitimacy of taxes like a gasoline tax (as opposed to the vapid ones for an income tax). Although it would be far better to see roads owned by private owners, we are far from that — and many things have to happen before that battle could be fought.

    Protectionist policies like this one, however, have absolutely no good philosophical argument. Money is being taken from the taxpayer, and in effect spent on ensuring that voters keep their jobs without competition.

  10. 10 10 Alan Wexelblat

    I’m missing something here. A set of businesses who have chosen to abide by the laws on how labor should be imported into the country are contributing (or perhaps having a fee levied against them) in order to protect against those who are breaking the laws on labor importation. And that’s a protection racket… how?

  11. 11 11 Ken B

    @Alan
    I think SL’s argument will be in effect that the laws are themselves an illegitimate restriction to the flow of labor.

    He seems to entirely reject the legitimacy of restricting immigration. I for one do not, because I think there are other costs. There are freedom costs for example, and I invite those (like myself) with a strongly libertarian bent to consider the prospect of 1 billion new Pat Buchanan voters moving in. (1 billion is a silly number of course, but if we arguing principles silly numbers are jsut as relevant as sensible ones.)

  12. 12 12 nobody.really

    Imagine three things: A, B and C. The Blue Basket contains A and B. The Red Basket contains A and C. If people prefer the Blue Basket to the Red Basket, can we infer that they prefer B over C? That is, can we simply ignore A, since it’s equally part of both baskets? There are some results in behavior economics suggesting that we can’t draw that inference.

    I thought of that as I read Patrick’s remark:

    And of course the ‘fees’ will probably represent only a tiny fraction of the 600 million, the rest being funded by innocent taxpayers.

    Imagine three things: A, a policy that restricts undocumented immigration. B, firms that profit from documented immigration paying for Policy A. C, taxpayers that may derive little, no, or negative benefit from Policy A paying for Policy A.

    Landsburg wants us the appreciate how very ugly the Blue Basket is, which contains A and B. But, to me, the Blue Basket seems like a slight improvement over the Red Basket, containing A and C. At least the Blue Basket allocates the costs of a policy to the parties that benefit. The Red Basket permits the very same firms to benefit, but doesn’t allocate any (or much) of the cost to them, instead shifting the costs to taxpayers.

    However, if Landsburg were to concede that Red Basket is worse than the Blue Basket, then he’d have to acknowledge that his concern about the ugliness of the anti-competitive dynamic is misguided. Even if you conclude that this policy is mostly bug, the idea of shifting some of the costs to the parties that benefit is not a bug but a feature.

    Am I missing something here?

  13. 13 13 Josh

    KenB: what exactly do you mean by “Freedom Cost”? Do you mean the cost of the army to protect a country from another?

  14. 14 14 Steve Landsburg

    Alan Wexelblat: A set of restaurants who have chosen to abide by an agreement to restrict competition are contributing (or perhaps having a fee levied against them) to a Mafia enforcer who keeps the competitors away. Can you manage to see how that’s a protection racket?

  15. 15 15 Alan Wexelblat

    Err, no, I can’t see, but that’s probably because I reject the premises of your analogy. Let’s see if I can make any sense of this.

    I do not view “follow the duly enacted laws of the land” as equivalent to “an agreement to restrict competition.” You have no evidence that the businesses follow the laws willingly or – for example – because of an overriding belief that following laws is an important part of citizenship, regardless of whether or not one agrees with the laws in question.

    Furthermore businesses who follow laws that impose any restriction on what they can do are at a disadvantage in relation to businesses who choose to flout such laws and thereby gain an advantage. I would call that an unfair advantage and I would regard as legitimate the use of governmental force to compel all businesses to abide by those laws, until the day they are changed. Competitors are not being “kept away” – they are simply being required to play by the same rules. The statement “you may not enter this line of business” is not equivalent to the statement “you may not enter this line of business unless you follow the same rules and restrictions as those presently in this line of business, insofar as those are the law of the land.”

    So on those two grounds I think I disagree with your analogy.

    (And I apologize for the tardiness of this response; once again I wish your blog software would provide some notice when a comment response is posted.)

  16. 16 16 David Wallin

    Alan Wexelblat: So, to reduce competition in our part of town, you and I get together and hire thugs to “deal with” any possible competitors silly enough to open shop. We are bad people because such acts are illegal. But, you and I convince whoever makes the laws to make it illegal for competitors to obtain necessary permits to operate in our section of town. What a wonderful solution: less broken bones, and we get the government to fund the enforcement less than 100% out of our pockets. And, in your world apparently, we have the moral high ground because we are simply asking those protection competitors to “follow the duly enacted laws of the land.” I have a story about such an attempt to use liquor laws here locally that is much the same.

  17. 17 17 Alan Wexelblat

    David: you’re confusing laws with morality. I’ve not said that we are morally superior for getting laws passed that favor our business model. To my knowledge all businesses everywhere do this. A standard business strategy taught in all business schools is to create barriers to entry for competitors. To confuse this with racketeering is silly at best.

  18. 18 18 Nathan

    “A standard business strategy taught in all business schools is to create barriers to entry for competitors. To confuse this with racketeering is silly at best.”

    Perhaps I’ve just drank too much of the libertarian kool-aid, but I fail to see why you consider this comparison “silly” rather than “accurate.” To my mind, you might as well have written:

    “A standard business strategy taught in all loan sharking schools is to break the kneecaps of people who don’t pay back their loans on time. To confuse this with aggravated assault is silly at best.”

  19. 19 19 Steve Landsburg

    Nathan: Bravo.

  20. 20 20 Alan Wexelblat

    Nathan & Steve: OK, so you’re playing a semantic game rather than actually describing things. More power to you, but please realize that this Humpty Dumpty maneuver is going to confuse some people who speak more or less standard English.

    It’s quite true that if you wish to call an apple a pear you are now free to complain about the tartness of pears. But you’ll excuse me if I continue to refer to them as apples and point out that your semantic game doesn’t actually make any point.

  21. 21 21 Steve Landsburg

    Alan Wexelblat: What you call a semantic game, I call an illuminating analogy.

  22. 22 22 Metamorf

    It seems to me that the ugliness here is just in the tax, which unnecessarily connects two different things. Border security per se is just inherent in the idea of borders — if you don`t like border security, why have borders? And labor importers exist because there are things like borders, no? In other words, your analogy evaporates if there were no tax, and there doesn’t need to to be a tax.

  23. 23 23 TAK

    The personnel companies referred to by you get skilled workers who qualify for a H1B visa into the US, LEGALLY after paying visa fees. The work they carry out possibly is supposed to make (?) US companies more competitive and productive.

    The people who cross the borders illegally are another subset and hence not competition for the personnel companies bringing foreign workers to the US legally.

    This law is like making big pharma pay for your DEA that controls narcotics. Both make drugs available to Americans – only they are a different kind.

  24. 24 24 John Kannarr

    Alan Wexelblat seems to think that any law that some politician or group of citizens decides to pass is legitimate. Of course, politicians and citizens who think they will benefit from preventing competition will see the beauty of their simple solution – passing a law (and then claiming to be for “law and order”) is so much easier than being a superior competitor.

    The question is: Should such laws ever be allowed to exist in a free society? My answer is “definitely not.” Laws should not be passed for the purpose of helping some and hurting others.

    Then there is the issue of potential customers of the legally-prevented competitors. Why should those customers be prevented from having access to the services of those “illegal” competitors? Why should their rights to deal with the vendor of their choice be denied, so as to benefit inferior competitors?

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