Regulate Less, Save Lives

Posted by: on Jul 17, 2006 | No Comments

It is a fundamental principle of economics that demand for a product increases with a reduction in its price. As regulations are ‘free’, and people who advocate them bear negligible costs, it is virtually guaranteed that demand for government regulations will continue to grow indefinitely.

However, do government regulations really cost us nothing? Is the cost always borne by big corporations and evil businessmen? Businesses may initially bear the costs, but rest assured that they will, as soon as they can, pass on these costs to you and I. How? By an increase in the price of goods that we buy. We as consumers ultimately pay for all government regulations.

Each individual regulation added onto by the government means little to us, and the cost of each may be so infinitesimal, that it is only rational for us to ignore it and concentrate our attention on more pressing matters. The problem is that when the cost of all the regulations imposed on us is added up, it is no longer a small matter.

The only country where an attempt has been made to identify the cost of regulations is the US. The cost borne by its people was estimated at $660 billion in the year 2000. The projected annual cost now for a household of four exceeds $10,000.

Clearly, this level of regulation if imposed on the people of Nepal, would immediately shatter the economy. Imagine if the US regulations, designed to protect buildings against earthquakes in Los Angeles, were made applicable in Kathmandu. All, except the wealthy few, would find themselves gazing at the stars at night instead of a roof.

Even though a rich country can better tolerate regulations, yet it is this regulatory burden – exceeding half of the US federal government’s tax receipts – which has made annual growth rates in America average an anemic two percent.

No one doubts the good intentions of our lawmakers. Regulations are often drafted with thoughts of making our buildings safer, food healthier, water hygienic, air pollution free, aircrafts less likely to have accidents, and labour happy.

The problem is that this plethora of regulations increases the cost of everything we buy and, hence, makes life difficult for the most vulnerable in our society: the poor. They just cannot afford the costly goods.

Theoretically, it is possible to eliminate aircraft crashes by zealous government oversight and regulation. However, the cost of such burdensome regulations would make air-travel so expensive that many more people would die because of the use of road transport, which is far less safe than travel by air.

In Nepal, the best way for government to make domestic air travel safer would, ironically, be by deregulation. Let the government abrogate the monopoly of domestic airlines and permit foreign airlines to compete on domestic routes. This would increase foreign investment, bring in international airlines – with a worldwide reputation to protect – and make flights safer.

Big companies often capture the government agency in charge of regulating by intensive lobbying. They then use regulations as a weapon against their smaller competitors.

In the UK, for example, large businesses wanted an onerous licensing burden to be applied to all food premises. These big companies knew that they would have an easy time complying with these regulations, but their smaller competitors would be forced to close shop.

In the same manner, asking roadside restaurants in Nepal to adhere to standards which are met by Hyatt or Holiday Inn would result in their closure. Commonsense tells us that this is not a desirable outcome.

Likewise, minimum wage laws and other labour legislation cause problems for small businesses. The big companies can pay their staff more than what is required by law and would be happy to see that the small enterprises are forced to do the same. Strict enforcement of wage & labour laws as exist today would lead to the closure of most of the small businesses with unemployment even more widespread than it is now.

We should learn from the example of the developed countries and try to rid ourselves of regulations if we are to banish poverty faster. Deregulating by creating wealth, would save lives. Rich people live longer by about 20 years – that is the difference in life expectancy between those living in the rich and those in poor countries.

The Himalyan Times

Airlines and Regulations

Posted by: on Jan 3, 2005 | No Comments

The world including Nepal has realized the disservice caused to all of us by the state running businesses. Worldwide privatization of government assets has taken place on a grand scale.

However, most people still maintain that regulation by state is essential. Poor service by private organizations is the reason why many of us want government oversight.

In an article on domestic private airlines in the 19-25 November issue of Nepali Times by ‘Artha Beed’, the service – or rather the lack of it – was given by him as a reason for wanting the government to step in. He said that free markets need government regulators to be successful.

Not so. Let us find out what went wrong. When private airlines first took off, the staff was enthusiastic and well groomed, service was warm, and flights were on time. Let us agree with Artha that service and courtesy has since vanished.

Let us, however, compare the situation now with what was prevailing at the time when RNAC was the only airline. Perhaps Artha is too young to remember. People used to queue up overnight to get tickets, service was non-existent, and the staff attitude said, ‘put up with us or walk to your destination’. However, bad the situation now is, it is infinitely better than at the time of RNAC’s monopoly.

Apart from the impossibility of government regulators forcing the airline’s staff to smile (Artha’s desire), regulations boost costs, empower corrupt bureaucracies, and achieve little.

Does it mean that Artha will remain permanently frustrated? Is there no way to make private airlines come upto his expectations? Fortunately, there are ways to improve efficiency and service without the heavy hand of the government.

Ending RNAC’s monopoly was good. What wasn’t good was prohibiting foreign airlines from flying on domestic routes. If you want world class service, then you must let world class companies compete in your markets.

This is not only true of airline business but of all businesses. India was no better. Under the anti-foreign-investment raj of Indira Gandhi, protected businesses produced shoddy goods and customers got lousy service. Now, foreign investment where permitted is changing that.

India which produced the ugly ‘ambassador’, even for which there was a waiting period, now offers its consumers an unlimited array of world-class cars. Its autos and their components are exported to many countries. Would this have happened under the protective regime of the Neheru-Indira era? Never.

Nepal does not need more government regulations but opening up of its market including the domestic airline market to free and unfettered competition. Then it will be companies which best serve the interests of the Nepali consumer which will thrive.

A word of caution here is necessary. Open and free competition does not mean that private businesses, be they airline or any other, will always meet all of the customers expectations. It only means that customers will have a choice and most will be satisfied most of the time. All customers cannot always be satisfied. Airlines, for example, can only provide the level of service which the public is prepared to pay for.

While travelling within the US, I find that airlines do not serve much more than a packet of peanuts and a soft drink. This is because the US airlines have found that people travel on basis of cheap fares. The preference of people is not for fancy service and gourmet food but low ticket prices. Customers want rock bottom fares and that is what they get. They can always pick up-food of their choice at the airport’s fast-food restaurants and are unwilling to pay extra for food and service inside the aircraft.

It is possible that even after the domestic airline market is opened to foreign competition Artha still does not get gourmet food served to him on his half hour flight to Pokhara. This would only be if most travelers value cheaper flights which do not factor in the cost of Artha’s choice of food and drinks.

But again if Artha has resources he should have options. He could buy a plane, hire his own pilot and airhostess, and have food of his choice served to him. Good luck Mr. Beed.

The Himalyan Times

Where is the Gas?

Posted by: on Dec 7, 2004 | One Comment

It is December 7, 2004 as I write this. America remembers it as ‘a day of infamy’. On this day, 63 years ago the Japanese attacked Pearl Harbour.

For me this is a day of infamy in Nepal. Petroleum products have yet again vanished. Throughout the day, queues of vehicles at gas stations lengthened. It is criminal at this day and age for Nepal’s policy makers to repeatedly subject its citizens to this torture.

It is ironic that even as prices at gas stations worldwide decline as a consequence of a drop of US$10 per barrel in price of oil, Nepali consumers cannot fill up their vehicle tanks. How many times does history have to repeat itself before something is done?

That ‘something’ is getting rid of Nepal Oil Corporation (NOC). And I do mean getting rid of it in double quick time. Government has had privatization plans on the anvil for far too long. It is time for action.

NOC must be sold in a fair and transparent manner. But that alone is not enough. Care must be taken to see that it no longer enjoys any monopoly privileges.

Open up the entire oil sector – imports, distribution, and sales – to competition. Allow any company from anywhere in the world to set up base in Nepal.

It is this competition that will end the shortages, bring quality products, enhance the service at gas stations and bring gas prices in Nepal at par with the international market after adjusting for local taxes.

A major benefit of allowing unfettered competition in Nepal would be to end adulteration of petroleum products. This practice wreaks havoc on the vehicles. When companies have to protect their reputation in the open market they see to it that their gas stations sell only quality products. It is only when you have a government protected monopoly that you couldn’t care less about your customers who don’t have a choice.

Why does the economy of this country have to be repeatedly wracked by government mismanagement? Why is no action taken?

Whereas other countries learn fast, Nepal shows a proclivity to take an unduly long time to absorb the lesson of past failures. It should have been clear to all that NOC can’t meet the expectations of the people. The citizens of this country deserve better than over and over becoming a prey of this government organization.

The US, which is the world’s largest consumer of gasoline, too has faced a situation similar to what Nepal faces today. However, that was during the time of one of America’s least economically savy President, Jimmy Carter. He believed in the ‘Whitehouse’ micro-managing everything from the distribution and pricing of oil to rescue of hostages in Iraq. He was a failure and lost the election to Ronald Reagan. Shortly after Reagan took office in January of 1981, he reversed Carter’s actions.

Reagan did this by removing price controls on oil and ending the practice of allocating oil by government fiat. The results confounded Carter and his supporters. They had said that eliminating the price ceiling on oil would result in an unacceptable increase in prices people would have to pay at the pumps.

Did this happen? The results were the reverse of what Carter expected. Deregulation freed the market, ended shortages, queues at gas stations vanished overnight, and best of all the price of oil dropped.

Though prices in the US go up and down in response to international fluctuations, no President since Reagan has ever instituted government ownership or control over oil flows. And the American people have never had to queue up at pumps again.

Private companies in America are adept at fulfilling the needs of their customers. Gas stations are sparkling clean, display prices prominently and many have department stores on premises. And customers have a choice. If you don’t like the service of one you can go to another. Each oil company – Texaco, Chevron, Exxon and many more – have their own or franchised gas stations.

Should the Nepali consumer not be pampered with similar levels of service and have the same choice as his American counterpart?

The Himalyan Times

Tobacco, Alcohol, Gambling and Me

Posted by: on Apr 15, 2004 | No Comments

I smoke. I drink. I gamble. And there are plenty of people out there like me. In fact any person who has never smoked, drank or gambled would be rare to find and probably be disappointingly boring too.

What chance do government efforts have of stopping activities which, inspite of their purported harmful effects, are engaged in by an overwhelming majority at same point in their lives? None whatsoever.

I, for one, resent government intrusion into what essentially is my personal matter. Government and society has no role to play in deciding whether I light up a Marlboro, have my daily scotch, or I bet on cricket.

What is the effect of legislation which makes it mandatory for cigarette companies to place statutory health warning on all their packs and advertisements. I, like all other smokers I know, could not care less. The warnings elicit barely a thought.

And it has to be so. Anything which is as ubiquitous as warnings about tobacco gets a big yawn. It is part of the background which you see but hardly notice or pay attention to.

My doctor tells me to quit smoking, and so do my parents, wife and friends as well. I don’t need the government to do the same. This nagging, whether by friends and family or by the government, has no effect on me. At best I ignore the nags, at worst I find it so irritating that, in presence of those who object, I light up even more.

I will give up smoking whenever I’m ready to do so and not a day before. If I get cancer in the meantime so be it, I have the right to live my life as I wish and take as much risk as I desire. Perhaps my family, friends and well-wishers too will be affected by my decisions besides me, but, no one else will be. Therefore government and society doesn’t even come into the picture.

Leave my smoking, drinking and gambling habits for me to sort out with those who are near and dear to me. I value my freedom to be left alone far more then my health. I will therefore ask the do-gooders to desist from using the power of government to control my life, even if they think it will do me good. I am not a child and do not like my actions to be monitored or controlled by a nanny state, when I harm no one except myself.

And even if you wish me well, and are bent upon using government to do me good, good which I do not desire, you will never succeed. If you make alcohol and tobacco too expensive, you will, in fact do me more harm. I will not stop drinking or smoking, I will just move on to cheaper brands. I will smoke beedis if I have to but smoke I will. I will drink even illicit hooch if you make scotch too expensive, but drink I will.

What if you, acting in my interest, but against my wishes, forbid production, distribution and sale of cigarettes and whisky, and, make gambling illegal. You will be making a big mistake for you will achieve nothing. Don’t worry about me, whatever you do, I will get my smoke and my drink from illegal, underground sources if you make it impossible for legitimate businessmen to supply what I need. I will also find someone to accept my bets whatever you do.

Economics and history would both be on my side. Mahatma Gandhi tried to enforce prohibition in India. He failed. India’s efforts to ban gambling have resulted in every street in India having gamblers who will either be placing or accepting bets on cricket matches. Americans experimented with prohibition in the 30’s, the experiment was a miserable failure leading to the rise of gangsters like Al Capone who kept the Americans well supply with their daily drinks. America’s current efforts to control drugs have also failed and have in fact exacerbated the drug problem. The underworld keeps drugs within easy reach of all students in every campus in every US state.

My advice to government, society and do gooders, ‘Leave me alone, for it ain’t anybody’s business if I smoke, drink, or gamble.’

The Himalyan Times