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

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