How to think about regulation

October 21, 2013
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If not for regulation by The State regulation many people believe companies would run wild, wrecking the environment, and selling us bad food, deadly drugs,  and harmful products. It would be silly to claim these things never happen. After all….

  • Not all people are good
  • People who are mostly good aren’t consistently good
  • And sometimes people simply make mistakes, out of ignorance or sloth

But politicians and bureaucrats are people too, and subject to these same failings. Do we really solve the problem of human imperfection by giving one group of imperfect people power over the rest? To this we might add “Is there any form of human being more imperfect than the politician?”

Don’t think only of the politicians you like. Think also of the politicians you hate. Do you really want them to have power over others?
I think a strong case can be made that the worst politicians have done far more harm than the worst business people. After all, the power scales are so vastly different….

  • Politicians and bureaucrats have a monopoly to initiate force
  • They have access to vastly greater resources than even the largest company
  • They cannot easily be fired, unlike a business

This makes it reasonable to ask…

  • Can anything other than politicians and bureaucrats regulate how business people behave, and if so….
  • How do these non-state forms of regulation compare to what The State provides?

Consider these answers . . .

Consumers regulate businesses

  • Consumers punish every company that sells a bad product or service
  • They also spread the word about bad companies to other customers
  • And many people refuse to do business with companies that harm the environment

This form of regulation is enshrined in the proverb “The customer is always right.” And, because of this…

Investors and lenders also regulate businesses

They do this to protect their investments from retaliation by angry customers. Sometimes this regulation involves direct oversight, and sometimes it involves the purchase of insurance, which then leads to….

Regulation by insurance companies

Unlike politicians and bureaucrats, insurance companies have their own money at stake. This motivates them to regulate the companies they cover. One way they do this is through product-testing using firms like Underwriter’s Laboratory, or NSF International.

Legal liability also regulates businesses

This liability is determined through due process in a court. This differs from The State’s regulation in a crucial way. State regulation attempts to prejudge which products and services may be harmful, and to dictate how this danger must be mitigated, in advance. This sounds good, but it has serious problems, as I’ll show below. By contrast, legal liability presumes that a product or service is “innocent” until there’s evidence of harm. This is the commercial equivalent of the principle we know from criminal law — “innocent until proven guilty.”

The above points debunk a widely believed myth

A completely free market would NOT be devoid of regulation. Instead, it would have multiple forms of regulation. In fact . . .
It’s inherently impossible to have a de-regulated society. Consumers, investors, lenders, and insurance companies will always take steps to control what businesses do, even if The State does nothing. So…

Does The State really have a role to play in regulating business?

Do we really need politicians and bureaucrats to prejudge whether a product or service is harmful, and dictate how that risk must be mitigated? This depends on how you answer questions that are even more basic….

  • Can you fire politicians and bureaucrats who create defective regulations?
  • Will politicians and bureaucrats have to personally pay the cost of any harm they cause, the way a business must?
  • What do you do if politicians and bureaucrats design regulations to benefit their friends?

These are powerful questions. But they’re really just another form of our first question…

Do you solve the problem of human imperfection by giving one small group of imperfect people power over the rest?

I say the answer is no. The real problem is not how to regulate businesses, but how to regulate politicians and bureaucrats.

  • They are the monopoly.
  • Their power to initiate force is inherently criminal
  • They have vastly more resources than any company
  • They are vastly more difficult to control

In fact, The State is essentially anarchistic. It is regulated by no one.

In conclusion:

  • The State is a monopoly — regulate it!
  • Politicians and bureaucrats have only one tool — initiated force. Remove this power!
  • Businesses are peaceful and voluntary. Leave their regulation to consumers, investors, competition, and insurance companies.

For a concrete example of the points made above, please read my essay about “The Jungle” rsz_1sinclair_-_jungle_bindingby Upton Sinclair.

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Copyright (c) 2010 by Perry Willis. Permission to distribute this blog post for educational purposes is granted, if done with attribution to the author and the Zero Aggression Project. Permission to use for commercial purposes is denied. You can find a full explanation of our copyright policy here.


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