R is for regulation

June 29th, 2014 at 4:00 pm by David Farrar

This week is R:

Regulations govern conduct and a well-regulated society is a well-ordered and civil society.  But bring up the topic of government regulation and expect passionately polarised responses for or against more rules or less red tape.

Government regulation can be particularly controversial when the community is deeply divided over some regulatory choice that must be made, such as the rules affecting abortion, compulsory military service at the time of the Vietnam War, or to allow or ban the Springbok tour in 1961.  But a prime role of government is to find a response that best preserves community peace and cohesion.  A society without government regulation is a fantasy.

More generally, government laws and regulations can displace, for better or for worse, rules in privately-agreed arrangements for regulating conduct, such as employment agreements, school rules and rules governing gated communities.  They can similarly displace long-accepted common law rules.

Government regulations are sometimes categorised as social (eg abortion laws), environmental, or economic.  Views about their desirability differ, particularly through time.  A major change in recent decades in New Zealand, and elsewhere, has been a rise in restrictive environmental regulation offset by major economic de-regulation.

Today much government economic regulation is ostensibly aimed at stopping businesses from exploiting or misleading suppliers, employees, customers and investors.  Yet economic research finds that businesses may support some of this regulation, perhaps judging that it most hurts competitors.  For example, the regulation of quality can raise costs disproportionately for SMEs, hurting consumers overall.  Economists call this the capture theory of regulation.  However, the theory may not explain regulations that are opposed by business.

Another proposition is that governments care not one fig about interest group pressures or contributions to political campaigns, but regulate solely for the benefit of the wider community.  This is called the public interest theory of regulation.  A major regulatory textbook dryly observes that a large amount of evidence refutes this naïve proposition.

In contrast, the mainstream economic theory of regulation proposes that interest groups lobby for changes in regulations that will particularly benefit them and politicians respond rationally to these demand since they want to get re-elected.  Political parties merely differ with respect to their favoured constituencies and ideologies.  Outcomes can be difficult to predict since they depend on the voting balance between contending considerations, but the national interest is not centre stage.

Whether a particular regulation does best serve the overall community can be difficult to determine.  Economists use cost-benefit analysis for this purpose, but it has well-known limitations.  Any analysis should anticipate the Law of Unintended Consequences – the adage that intervention in a complex system commonly creates unanticipated, often undesirable, outcomes.

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14 Responses to “R is for regulation”

  1. mikenmild (10,766 comments) says:

    ‘the Springbok tour in 1961.’
    I suppose, to the 14-year-old that writes these columns, 1961 and 1981 are equally in the distant past.

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  2. Mark1 (89 comments) says:

    I think the NZ Initiative needs to research NZ’s rugby tours a bit better. Minto would have definitely got his arse kicked in 1961 at the age of 7.

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  3. nasska (10,699 comments) says:

    Some regulation is the oil that allows society to run…..too much regulation chokes it. When no one man, be he even a high court judge, can understand fully the laws we are expected to obey then we are over governed.

    This small nation has well passed that point.

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  4. mikenmild (10,766 comments) says:

    Well, that’s about as sophisticated as the analysis from the New Zealand initiative, nasska.

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  5. Ed Snack (1,740 comments) says:

    mikenmild, the man who never met a regulation he didn’t like.

    Come on mike, tell us why the analysis is so juvenile.

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  6. tom hunter (4,437 comments) says:

    r is for writing, which the NZInitiative desperately needs in this series.

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  7. UglyTruth (4,050 comments) says:

    Regulations govern conduct and a well-regulated society is a well-ordered and civil society.

    A society cannot be a civil society without the existence of the state:

    Civil: Of or relating to the state or its citizenry. Relating to private rights and remedies sought by civil actions as contrasted with criminal proceedings. The word is derived from the Latin civilis, a citizen. Originally, pertaining or appropriate to a member of a civitas or free political community; natural or proper to a citizen. Also, relating to the community, or to the policy and government of the citizens and subjects of a state. (Black’s 5th)

    For regulations to exist regarding society there most first exist a superior or competent authority:

    Regulation. The act of regulating; a rule or order prescribed for management or government; a regulating principle; a precept. Rule of order prescribed by superior or competent authority relating to action of those under its control. Regulation is rule or order having force of law issued by executive authority of government. (Black’s 5th)

    In the case of the civil state of NZ this superior authority is not real, it is only assumed. The basis of sovereignty described by parliament contradicts the basis of sovereignty described by the courts:

    “Parliament is recognised as sovereign (the highest authority) in the law-making process because it is accountable to the people.”
    http://www.parliament.nz/en-NZ/AboutParl/HowPWorks/FactSheets/0/e/7.htm

    “It now seems widely accepted as a matter of colonial law and international law that those proclamations approved by the Crown and the gazetting of the acquisition of New Zealand by the Crown in the London Gazette on 2 October 1840 authoritatively established Crown sovereignty over New Zealand.”
    NZ Maori Council v Attorney General [1987] 1 NZLR 641 (Court of Appeal)

    http://nzinitiative.org.nz/About+Us/Overview.html

    Every good think tank needs solid foundations. These are ours:

    Credibility: Our research is based on a sound theoretical framework and is peer-reviewed on a routine basis

    ROFL.

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  8. UglyTruth (4,050 comments) says:

    Some regulation is the oil that allows society to run

    Regulation, like the state, is not an essential part of society. There are some reasonable arguments out there as to why society would be better off if the state did not exist.

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  9. Mark1 (89 comments) says:

    Geez I get a down-vote having a crack at Minto on Kiwiblog? What the hell has happened to this website?

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  10. wat dabney (3,696 comments) says:

    Come on mike, tell us why the analysis is so juvenile.

    As a fully paid-up member of New Zealand’s parasite class, milky understands that dense, excessive regulations administered by a bloated bureacracy are what keeps him and his fellow rent-seekers in their comfortable, over-paid “jobs.”

    If they were ever compelled to earn an honest living the market place it would be like Care in the Community.

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  11. Left Right and Centre (2,825 comments) says:

    hahahahaha – ‘W’ is for ‘White ruling elite’. (With a few token minorities to avoid ‘taking the piss’).

    http://nzinitiative.org.nz/Contact.html

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  12. Odakyu-sen (443 comments) says:

    The irony is when you don’t have any regulation, certain groups get into positions of power and set up their own regulatory systems to discourage competition. So, you’ll have control one way or another.

    The only was out is to participate in the regulatory process through the ballot box.

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  13. prosper (132 comments) says:

    I have always liked the idea that for every new regulation introduced an existing one must be dropped.

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  14. Judith (7,715 comments) says:

    I have always liked the idea that for every new regulation introduced an existing one must be dropped.

    I much prefer – “I have always liked the idea that for every new regulation introduced, an existing MP must be dropped!”

    Would tidy the country up a great deal!

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