Suppose you lived in a free country—not a country freer than most unfree countries, but a truly free country. (One necessary condition of “truly free” is certainly the absence of constant government regulation and surveillance in most areas of life.) You would prefer the whole world to be as free as you are, if only because it would give you more trading opportunities, interesting relations, and international mobility. But the worst situation for you would be if your country, in the sense of its residents including you, became as unfree as others in the world. In other words, let the other states in the world regulate and control, but do not wish that on the country where you live.
In the Financial Times (“The Bitter Lessons of Brexit,” January 22, 2022), columnist Martin Wolf complains about many bad economic consequences of Brexit. He correctly laments that the nirvana promises of the Brexit advocates have not been realized. But he suggests that the single European market was useful because it was submitted to a single set of top-down regulations, which British businesses still have to follow anyway if they want to sell their wares on the continent short of moving there.
Indeed, what a mess: trading one meddling government for another! Instead of pursuing unilateral free trade (imitating what its old territory, Hong Kong, used to do), the UK government is playing the protectionist-dirigiste game. On this, Mr. Wofe is silent.
Let the UK government abolish most regulations. Stop regulating and controlling your own subjects. Let them buy where they want and sell where they can. British exporters will naturally have to adapt to EU regulations if selling to regulated customers on the continent is worth the cost. Forget about the myths around the “balance of payment” (which, by the way, as noted by Wolf, has deteriorated since Brexit for trade in goods with the EU). Let them foreigners regulate and be regulated as they want or as they can support. You don’t build a free country by plagiarizing the unfree. Just let your subjects be free. “Dammit!” as Javier Milei would add.
For reasons well explained by public-choice theory, this is not what the UK government is doing or is likely to do. But if Mr. Wolf realized that efficient trade—trade that follows what diversified consumers want—does not require top-down regulations, he could perhaps contribute to cutting the Gordian knot of dirigisme.
READER COMMENTS
Jose Pablo
Jan 24 2024 at 11:37am
One necessary condition of “truly free” is certainly the absence of constant government regulation and surveillance in most areas of life
And taxes, don’t forget the absence of taxes. It is very difficult “to be free” when you are strong-arm robbed on a daily basis.
David Seltzer
Jan 24 2024 at 1:45pm
Ah Pablo. Another voice in the wilderness!
Pierre Lemieux
Jan 24 2024 at 2:30pm
Jose: I did write “one necessary condition.” Both the “one” and the “necessary” are important. There are certainly other necessary conditions in the set of necessary and sufficient conditions. And note that the more spoliatory taxation is, the more regulation and surveillance its enforcement requires.
Richard W Fulmer
Jan 24 2024 at 2:36pm
How the British public’s vote against EU regulations got translated into a desire for those same regulations administered by the British government is truly a wonder of the world.
Jose Pablo
Jan 25 2024 at 9:48am
The main problem of Britons with “EU regulations” was not that they were “regulations”, it was that they were “other people” regulations.
The “magic trick” of democratic governments is that no matter how oppressive tax and regulations are, government subjects will feel free as far as they are allowed to cast an irrelevant vote now and there.
How this totally meaningless, useless individual vote provides legitimacy to the government to regulate and tax individual citizens to an extent no other entity/person (including the EU “government”) will be allowed to do, is a total mystery to me.
Craig
Jan 24 2024 at 7:51pm
” Instead of pursuing unilateral free trade”
Well irrespective the only true point of leaving the EU would be to pursue freer trade with non-EU partners. Even within the multi/bilateral paradigm, the UK should obviously pursue an FTA with the US and others. With respect to the EU itself NATO participation should be expressly conditioned on tariff-free treatment from the EU.
Pierre Lemieux
Jan 24 2024 at 10:51pm
Craig: With due respect and if I understand you correctly, you are falling into Wolf’s protectionist-dirigiste-establishment paradigm. Especially when so-called “free trade agreements” have become state treatise on labor and environmental regulation (but even if that were not the case), the easiest way to have real free trade with whomever is to implement unilateral free trade. (You might find the link in the post to one of my articles useful.) Think about the UK in the mid-19th century or Hong Kong after WW2. “A country” that imports less must export less at least over a certain period of time. And an import tariff is equivalent to an export tariff (see the Lerner Theorem).
As for NATO, that’s again the wrong paradigm: external security is what states organize (and must organize if you don’t think like an anarchist), trade is what individuals (or their voluntary middlemen) do.
Mactoul
Jan 24 2024 at 9:15pm
But how it is that in real world one finds more regulations in richer countries. Indeed richer a country is, more regulations it has.
And before you cite difficulties in starting a business in India, please understand that this refers only to the organized sector and in poor countries most people work in unorganized sector which by definition is unregulated.
Just contrast opening a food stall in India vs Japan (where a stool test may be required).
Pierre Lemieux
Jan 24 2024 at 10:29pm
Mactoul: There is a complicated trade-off there. Less regulation can mean not liberty but more arbitrary power outside the rule of law. Think of North Korea.
Craig
Jan 24 2024 at 10:48pm
Perhaps try to keep the comparisons as close as possible. Consider comparing say West Germany with East Germany, North/South Yemen, North/South Korea, Chile with Argentina or Brazil, perhaps Communist China with Hong Kong or Taiwan or even against itself post reform v before.
Mactoul
Jan 25 2024 at 12:56am
All examples pertain to communist dictatorships. We all agree that they are bad and their example says nothing about the necessity of regulations.
Any number of examples may be given that richer a country, more regulations of all type it tends to have.
Poor countries may not have speed limits posted , no regulations about parking space– indeed in Europe you find street signs indicating one may park here between this and this time, this day of the week.
No regulations of shop opening and closing hours, no minimum wage, no forbidding of child labor. The list goes on and on
One needs to live in both rich and poor countries to realize the difference in degree and kind of regulations.
john hare
Jan 25 2024 at 4:16am
It is only when a country is wealthy enough to afford the regulations that the deadweight cost of them can be absorbed. And even then, some sectors of the public will be harmed. I am well over a year into the process of getting a permit for a small house that we can build for cash. Regulators don’t like little houses or unusual construction techniques. (reinforced concrete with integral insulation)
Jon Murphy
Jan 25 2024 at 9:07am
Necessity? No. But your original comment was not about necessity but number. You said:
The existance of poor communist (and other countries) shows your statement is incorrect; not all countries that are wealthy have more regulations. Many poorer countries have more regulations than welthier countries.
Regulations are indeed necessary for life. As long as humans live with one another regulations exist to limit our behavior: rules of morality, legislation, etc. I don’t think you’ll find anyone who disagrees that regulations are necessary.
But, just like anything, just because something is necessary does not imply more is better. The original relationship you posit (more regulations = more wealth) does not hold. Just like anything, regulations have costs to them. But they can also have benefits. Ideally, only regulations that have benefits that exceed their costs* exist. Of course, due to various collective action problems, that will not always be the case.
In economics, we have a concept called diminishing marginal returns. What that means is, all else held equal, the more you add of a thing, the less benefit you get from that thing. Applying that to regulations, initial regulations may be beneficial (thou shal not kill, thou shall not steal etc). But as one adds more and more, the benefits from addition regulations fall. Here in the US, we are likely well beyond the point where additional regulation is beneficial along many margins. We are wealthy because we remain a generally liberalized place (generally free markets). So, the net costs of many regulations are hidden. But, in times of crises, those hidden costs become revealed: the cost of regulation was forefront during the COVID-19 pandemic, where regulation stimied the US’ ability to effectively respond to the pandemic: trade regulations prevented us from importing needed goods, production and price regulations prevented us from making making goods, etc. Indeed, probably the best action taken by the Trump Administration was Operation Warp Speed, which dramatically reduced many regulations.
In short, do not be fooled by total numbers. Look at the margins.
*Note I am using “costs” here in the economic sense to mean what one has to give up. Therefore, we are looking not just at NPV but a deeper, richer understanding of cost-benefit analysis.
Pierre Lemieux
Jan 25 2024 at 5:29pm
Jon: This doesn’t affect the heart of your argument here, but we still have to confront a basic problem of cost-benefit-analysis framework: it weighs the (money) cost of some individuals against the (money) benefits of others. And it won’t do to say that a positive net balance proves that the harmed individuals could have accepted a compensation that the benefited ones could have offered–because we have no way to reach this conclusion. (Coase said as much, without perhaps realizing all the implications of his statement, when he said that, in the “Coase theorem,” he had just not thought about the redistributive effects.) I am certainly interested in your thoughts about that.
Jon Murphy
Jan 25 2024 at 11:25pm
I agree with everything you said. Indeed, I’ll go with Buchanan who says that cost-benefit analysis in collective (ie nonmarket) decision making is not analogous to cost-benefit analysis in a market:
My point in my response to Macoul is that there is no particular reason to assume more regulation = more wealth, even if we grant some notion of Kaldor-Hicks efficiency.
Jose Pablo
Jan 25 2024 at 11:36am
one finds more regulations in richer countries
This correlation that you think you have found has very significant outliers. Apart from communist countries, think democracies like Argentina or Venezuela for instance.
But what is worse, as john hare points out, you are reversing cause and effect. Only rich countries can afford significant amounts of useless mandarins. And you do need those to enact and enforce regulations. Only rich countries can confiscate the amount of taxes required for that.
And Jon is right we are well beyond the point of “beneficial regulations” (I think we have been beyond that point for centuries now). I still have doubts that such a thing as “beneficial regulation that are not the product of expontaneous order” exist). That’s precisely the conclusion of the positive analysis of this topic performed by Coase (he sure went beyond the appearance a superficial correlation):
When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies–perhaps all the studies–suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been.
And he was, very likely, “normatively” against this conclusion. So he preferred an explanation along the lines of Jon’s comment (although, this time, as a pure normative position, with no positive analysis to support it).
I was not willing to accept the view that all regulation was bound to produce these results. Therefore, what was my explanation for the results we had? I argued that the most probable explanation was that the government now operates on such a massive scale that it had reached the stage of what economists call negative marginal returns. Anything additional it does, it messes up.
Yes, we are in the “anything additional” territory and yes, it messes up!
Mactoul
Jan 25 2024 at 8:15pm
There are all valid points but i can’t help thinking that the quality of life in rich countries does depend on the web of regulations.
You do need to live in a poor country to appreciate this– in India most urban land is not zoned but the zoned and planned areas command huge premium. Otherwise parking is haphazard, you can have a factory next door etc.
Jon Murphy
Jan 25 2024 at 11:28pm
Zoning may be a desirable regulation (although here in the US, zoning was used explicitly for exclusionary purposes. Still is: in my home state of Massachusetts, zoning is used to enforce racial segregation). But one can come up with any number of ancedotes. What matter, though, is what the data say. The data find that more regulation tends to lead to less wealth, not more.
Mactoul
Jan 26 2024 at 9:01pm
I wasn’t making a claim on causation but on correlation– more wealth correlates with more regulations with a weaker claim that wealthier societies demand more regulations.
Thus more wealth–> more regulations.
Jon Murphy
Jan 27 2024 at 8:01am
You made several causal claims (including at the end of this very response).
But that aside, your claims of correlation are wrong. Wealthier countries do not necessarily have more regulations.
Mactoul
Jan 25 2024 at 10:33pm
That a country can afford a regulation doesn’t imply it actually having it.
There must be an actual demand for it and by the present evidence, the rich countries demand more regulations. Or the people who have more regulatory spirit, they tend to rise to power in rich countries.
Regulatory spirit has a degree of affinity to liberalism in being in spirit of ameliorism and reforms.
If the history of regulations is made, it may likely be found that most regulations have emerged from liberal circles.
Jon Murphy
Jan 25 2024 at 11:09pm
Such a history exists already. Liberalism moves to remove regulatio,n, not add it. It’s in the name. To liberalize something is to remove regulations.
Regulations emerged from illiberal circles (socialism, nationalism, etc).
Jose Pablo
Jan 26 2024 at 1:16pm
the rich countries demand more regulations.
who??
“Rich countries” don’t demand anything. They are, at their best, “legal constructions” that don’t have the ability to “demand” anything.
Some individuals, through interest groups and lobbyism, “demand” more regulation in rich countries because they see the opportunity to benefit themselves at the expense of others. A surplus that they can capture needs to exist for them to engage in this activity. It is a matter of incentives, and these are bigger in rich countries.
“Rent seeking” that’s the main mechanism by which regulation reduces welfare.
Jose Pablo
Jan 26 2024 at 1:18pm
“demand” more regulation in rich countries because they see the opportunity to benefit themselves at the expense of others.
By the way, zoning is a good example of regulation of this kind.
Comments are closed.