Real Capitalists Respect Regulation

Regulation is vital to functioning markets.

Without regulation, there is no trust. Without trust, there is much more friction in the exchange of goods, development of brands, and so on.

Would you be comfortable buying food if the FDA were not regulating the agribusinesses to ensure (reasonable) food safety?  (Or would you prefer to live in China and worry about whether your children were drinking real milk, or a poisonous but cheaper substitute formulation?)

Would you be comfortable taking out a mortgage (or credit card) if the banks weren’t being regulated?  Or would you rather have to read all the legal fine print to ensure there was no hidden scam?  (Oops, we practically have to do that anyway…)

Would you be willing to send your children to schools with no public oversight?  To buy them toys if there were no safety regulations?

Of course not.

Which is why real capitalists respect regulation.  Because trust is vital to business and, in the absence of trust, we’d have much smaller markets – and much more friction in them – which would all crush business profitability.

Perhaps, then, instead of blindly deriding markets and regulation, we should be appraising them and understanding the economic value that could be destroyed if we do not take good care of our system?

3 Responses to “Real Capitalists Respect Regulation”

  1. Sarah Baker says:

    As a self-proclaimed “real capitalist,” I feel compelled to leave some comments here.

    First, I’m not sure I find your examples (the FDA, bank regs, schools and toys) as compelling as you might assume. Those of us who believe in free markets actually are open to considering less regulation in these areas.

    I, for example, have routinely bought food that is not subject to FDA regulations, such as when I’m traveling in third world countries. I would definitely send my kid to a school where I and other parents have the sole responsibility for overseeing the school, and there is no “public oversight.” I’m also not so attached to buying endless toys for my kids that I need shelves of government pre-approved plastic objects in order to feel comfortable.

    But most free-marketeers support a strong and vibrant tort system, which is its own kind of regulation. In fact, a lot of free-marketeers I know would abolish artificial business entities altogether and make people, living breathing actual people with assets to protect, responsible for their own tortious conduct.

    I don’t really know any “real capitalists” that don’t support some form of regulation, the tort system if nothing else. Most can name some other regulations they also support, such as the requirement that drivers or certain professionals carry liability insurance.

    So, while I agree that it’s too simplistic to just be “anti-regulation,” it’s also too simplistic to be “pro-regulation.” Each regulation has to be judged on its own merits. There is a contingent of voters in this country who just tend to think that more regulation is always better. I’m part of another contingent who wants every proposed regulation to be carefully considered because of the problems with unintended consequences. For example, having worked with a lot of immigrants to this country I’ve seen first hand how some labor laws designed to help them actually make their lives just that much harder.

  2. Sarah, thanks for that thoughtful comment, you have given me a fair bit of education. Most importantly is pointing out the link between the need for regulation and the rise of limited-liability corporations. People with no corporate shields, liable in full detail for their own actions, would tend to be more responsible. Except for the old travelling salesmen, perhaps! But in general, I see your reasoning suggesting that if the ability to do social harm through bad behavior were less concentrated (in powerful corporations), there would be less need for a large powerful state with countervailing regulations. And less risk of that state becoming corrupt over overly powerful in its own right!

    I do, however, think that you may be so used to safe toys and safe food that you may not realize just how much damage was done to children and life expectancies back when there were fewer safeguards. And I personally get sick too often when I travel overseas to be willing to live in a country without food supply safeguards.

    I’d be interested in more links to “real capitalists” willing to support reasonable levels of regulation and tort liability, as opposed to those entire industries, whom we hear too much about, who poison the water or defraud borrowers or build shabby products and then, instead of cleaning up their act across the industry (still a level playing field) lobby to change the laws to permit their egregious behavior.