Regulating business with competition

Generally we try to protect ourselves from the excesses of capitalism with regulations.  An alternative method may be to increase competition.

Capitalism is known for its disregard for health and safety concerns and for its excessive profits.  To deal with these problems we impose regulations on firms.  As people are good at getting around regulations the natural reaction is to increase the regulations.

An alternative approach would be to increase competition.

One of the myths of our economy is to equate competition and capitalism.  The reality is that capitalism depends upon governments passing legislation which limits competition.  Most economic legislation, while labeled as consumer protection, works to restrict competition.  For example, many manufactured items are subject to strict regulations as a safety thing. .  But these regulations tend to be set so that only large producers can comply.  This means that specialty manufacturers cannot afford to get started as the extra costs have to charged to a small production run.

Health and safety regulations, copyright and patent legislation and licensing requirements all work to limit competition.

Here in Canada we have a strong commitment to separation of church and state.  The result is that the provision of spiritual and religious services comes closer than anything else to the perfect competition model.  When people move into a new area they often go church shopping, even among churches of the same denomination. 

Churches are also the least regulated institutions in the country as their members look after that either by asking their ministers to leave or by leaving themselves.  (Ministers get fired for one of two reasons – they get into relationships their congregations consider inappropriate or they over stay their welcome.)    When the United Church of Canada decided to ordain and marry gays and lesbians a lot of people switched denominations.

This blogger figures  increasing competition in most if not all industries would do a lot to resolve the excesses of capitalism and reduce the need for regulations.

One of the requirements of perfect competition is that all participants have perfect knowledge.  Therefore the only regulation needed is that firms be required to publish all the information customers need to make good decisions.  This would require us to take responsibility for our own lives rather than expecting the government to look after us.

I realize this suggestion is a political can of worms as people don’t like to reveal secrets.  However with internet and smart phone technology more and more information will be easily available.  Rather than trying to increase regulations we should demand that this information be made generally available so that we as consumers can become the regulators – just like church goers.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Regulating the cruise industry

Last week’s floating stool ship has put a little focus on the cruise ship industry and brought forth some suggestions the industry requires more regulation.

It appears that by cruising between international ports the industry has avoided coming under the jurisdiction of any one government.  It also appears to be a highly competitive industry and one that is prospering.  Maybe there is a lesson here about competition and government interference.

johnny_automatic_ocean_linerI have a theory that at the request of business governments pass laws to restrict competition in the belief that there will be greater profits if there is less competition.  Then to control the excesses of monopoly they introduce regulations.    If this is correct an industry in which competition is not restricted has no need for regulations.

It seems to me the cruise ship industry is regulated by its customers.  It is highly competitive and depends very much on returning customers.  These guys have to look after their customers.  If there develops a perception that the Carnival Triumph passengers are not being treated fairly or that ships are not being properly maintained,  the whole industry will probably pay for it.

Employees may not be in such a strong position.  Wages tend to be a function of supply and demand and the cruise companies draw their unskilled employees from the world market.  The companies benefit from world over population.  So  do the passengers whose fare would be quite a bit higher if the ships had to pay all their employees North American wages.  Employees also benefit from higher wages than they would get at home.

We have to note that a lot of companies in North America (and their customers) also benefit from the low wages that go with high unemployment.

One way to deal with the exploitation of labor would be some sort of guaranteed annual income which would make it a little less necessary for workers to accept poor pay or working conditions.

Protecting customers from the banks

What can governments do to help consumers protect their interests when dealing with financial institutions? (Or any other industry)   I suggest increasing competition and requiring firms to publish more information would be more effective than regulation.

I figure governments pass legislation to restrict competition.  This allows firms in the protected industry to collect  profits they wouldn’t otherwise get.  When the firms protected by the legislation get out of hand and blatantly exploit their customers governments introduce regulations to limit the offensive behavior. This is to protect consumers.

Generally the way to restrict competition in the financial industry is via licensing.  Therefore the way to increase competition is to loosen licensing requirements so that more firms can get into the industry.  More competition should reduce the opportunities for exploitive behavior.

The other way to protect the interests of consumers is to require firms to publish plenty of information about their business so their customers have the knowledge with which to protect themselves.  In banking this should include detailed information about their loan portfolios.

Shouldn’t  depositors have the right to know to whom their money has been loaned?   If a depositor has this information then he or she can evaluate the safety of the deposit.  If there are concerns about where a firm is lending one’s money then one can take the deposit someplace else.

This post was written after reading in The Guardian a concern that financial reform in Britain will not lead to more competition.  You can see the article here.

Right to know rather than regulations

The cover feature on this week’s The Economist about regulations in the United States.

Mostly the rationalization for economic legislation and regulations is to protect the public, but I have a theory that most of these work to restrict competition so that some producers of goods and services can make excessive profits at  the expense of consumers.

What we really need is protection from those who would restrict competition.

In the final analysis we as individuals are the ones who suffer when we do stupid things.  When governments make regulations to protect us from our own stupidity they are taking away from us the responsiblity to know what we are doing.

I figure the economic role of government should be to make sure we all have the information upon which to make decisions according to our values and the risks we are prepared to take.

Therefore, rather than lots of economic legislation and regulations governments should require producers of goods and services to make available full information about their products, their companies and their industries.  Right to know legislation should go so deep that legislators would need police protection  from all the lobby groups in the country.

Regulations and The Economist

This item was posted on The Economist website as a comment on an article in regulations.

http://www.economist.com/node/21534767

I have a theory that generally government legislation and regulations work mostly to restrict competition so that some people can make profits (which are not available with greater competition).

I don’t see how regulations are going to stimulate the economy.

Therefore regulations should be evaluated according to how they will make life better for us and how equally they are applied.

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