Who wants regulation?

What is the interest of regulation, whom does it strengthen and whom does it weaken? Who will the regulation help, who will it strengthen, who will it weaken and who will pay for it? Is regulation the way out of the crisis?

Regulation - where do we want to go?
Regulation - where do we want to go?

I used to write here two articles on regulation, supplemented by one article on monopoly and dominant position. I will now follow up on these three articles, by the term regulation I mean mainly regulation enforced by the state (or equivalent such as the EU), not market regulation (natural).

In connection with the current crisis appeared economists and others who he sees its core in insufficient regulation. Let's strengthen regulation! they call and say that, as a result, we will "get out" of the crisis and at the same time avoid another crisis. O, how wrong these people are!

Regulation and innovation

What causes regulation? Imagine I'm a baker, baking and selling rolls in one city. Every day new bakeries are created, new competition. Competition encourages innovation, forcing me to constantly reduce the price of my rolls and make production more efficient - that is, buying new machines and inventing new and new production processes.

Of course, I can also reduce the salaries of workers, but then they will probably leave and I will hire only the worse ones… which does not lead to more efficient production (and therefore to higher profits).

But one day I can think of a great thing - I will make some excellent rolls and give them to the mayor as a "public gift". I will take advantage of his current favors and confide in him about how terrible the roll trade is and that if it goes on like this, I will have to close the shop and release the people. I will mention that if new bakeries were not created, I (and thus my employees) would have lived much better.

And lo and behold, the city will stop issuing licenses to bakers.

At that moment, I am without potential competition. Everyone stops innovating, I can stop innovating too. There will be a real price increase, all I have to do is collect money and buy other bakers… a I have a monopoly between bakeries. Woe to the city if it wants to start issuing licenses again!

Competition is the engine of innovation. Competition is a state where I can worry that someone will take my customers, that is, profits. In an unregulated market, it's useless to be a monopolist, because it exists here potential competitionwhich will enter the market if I achieve high profits (perhaps because I will not invest in innovation). If the market is under some regulation, competition is restricted because it always is increase the cost of entering the industry.

regulation therefore restricts competition. regulation thus limits innovation and helps monopolies.

regulations and rules

Professor Zelený in Václav Moravec's Questions said that "regulation is the setting of rules for all market players ”. Well, on the market. The question is then simple: and how do we define the market?

Let me borrow again an example from article on monopoly:

In 1997, the American Federal Trade Commission (FOK) connection of two chains with office supplies - Staples and Office Depot. FOK justified this by saying that the merger of the two companies would create a chain of se 75 % market share. However, the FOK defined that market as the "market for office supply chains". Unfortunately (or rather, God forbid) office supplies are sold not only by "office supply chains", but also by thousands of small shops and also huge non-specialized chains such as Wal-Mart (such as the American Albert or Tesco). If we include these vendors in the relevant market, the combined share of Staples and Office Depot would be mere 5 %. Either way, the court acknowledged the unreasonably narrow definition of the relevant market and stopped the merger.

Regulation should, as far as possible, set certain rules for all market players, ie the only regulation that may not at least worsen the situation is the one that affects all citizens directly. However, this can also be debated, because each regulation has side effects. Every time it artificially hits the market, it has two sides: the visible and the invisible.

Rules exist even without regulations. Regulation is just an attempt to influence the rules so that to someone complied. These natural rules arise in the market, they are therefore much more effective, efficient and enforceable than the rules created "from above".

Justifying regulation by "only" setting the rules is thus completely out of the question, because regulation "only" sets ineffective and thus ineffective rules, which harms and hinders business.

For example, football rules were created "from below", naturally so that football as a game brings benefits - fun.

Regulation and profits

To whom do regulations "take profits"? Who is harmed as a result?

Of course, many people would immediately say that "to the richest mischiefs who harm us so much!" But this is a complete mistake. Let's summarize what follows from the article so far:

Regulation is primarily a restriction of competition. Those on the market they are not exposed to potential competition, or potential competition is more or less suppressed. Of course strengthens the position of currently the strongest players on the market, who have capital that (due to regulation) does not have to invest in innovation, but can invest it in strengthening their position (buying other bidders), which will cause us to create in the market oligopoly whether monopoly. Of course constructed or protected by the state.

Furthermore, regulation sets rules that are ineffective (less effective than market rules) and artificially set, ie ineffective. If we have set only the formal rules given above, we gradually come to a situation where no one in practice respects any rules. Not even the natural one, because respect for the rules is with any regulation reduces, because 1) regulations are artificial rules, given "from above" and 2) regulation creates a redundancy of rules, the rules are not rare and their "price" is not at the market optimum - so the rules are treated very vaguely. This will always lead to their circumvention or non-compliance. However, this can be relatively expensive as a result (fines from the state, necessary bribes of civil servants, etc.), so only those with a strong capital (released resources obtained from non-need to innovate) can afford it, which, however, in the result strengthens their position again.

They are actually innovations. Innovations in how to circumvent regulations.

Regulation and regulation

As mentioned above, we have come to the conclusion that any regulation encourages innovation in circumvention. This, in turn, will always become the basis for further and sharper regulation (starting with talk of "insufficient regulation") and further strengthening of monopoly firms that are linked to and benefit from a state monopoly on the use of power / violence.

The problem is that it encourages innovation to circumvent any rules. Regulations thus liquidate the market itself and are the real engine of the moral destruction of society. Each additional regulation is another larger or smaller building block to the fortress on behalf of the police state.

regulation it is thus always in the interest of the currently strong players in the market, whatever the initial intention in creating them. It always strengthens them and increases their profits. We can see this, for example, in the recent case with the blending of rapeseed into fuels - the blending was, of course, supported by the owner of the agrochemical concern and one of the richest Czechs, Andrej Babiš. However, I would not be surprised at all if, for example, representatives of car companies secretly lobbied for the same thing - rape reduces the life of many engines, which of course increases the profits of car manufacturers. Well, if they haven't been through the scrap yard in the Czech Republic, then at least the canola.

And who will pay for it?

Who will pay for the regulation? They will never be regulated by you. It will always be the final consumer, the "ordinary citizen", ie you, me, your family, acquaintances and relatives. And we will pay for it twice - once through taxes, the second time through the loss of innovation and higher prices for goods and services.

An antibiotic for the crisis?

Those who say that "we will drive away any financial / economic / crisis through further regulation" must realize that if we want to "drive away", for example, the financial crisis, we will do it only through a strong and functioning financial market.

A strong and functioning financial market can only emerge where there is strong competitive pressure and only if it innovates and if bad structures can die. And, of course, where it is possible to make a profit so that those innovations and competition pay off.

However, this is ruled out with regulation. Regulation will not solve the crisis, it will only deepen it or push it into the future.

The "greatest opponents of freedom" (free market) "are intellectuals and businessmen. The first want freedom for themselves and not for others. Others want freedom for others, but not for themselves. "

- Milton Friedman

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