GOVERNMENT REGULATION AND ECONOMICS
Before World War II, a substantial part of the world’s industries were operated by their respective governments. The situation as at present is a much different scenario — with numerous reports from Organizations like The International Monetary Fund, The World Bank, The United Nation Economic and Social Council and so many others encouraging liberalization of trade and industries — governments all around the world, with the exception of despotic nations, are either reducing their involvement in participating in economic affairs, or have reduced it already.
As a result of the divesting activities of the world governments, government’s economic control over the economy was relinquished. However, there still exists a very potent aspect of control ever present with every nation’s administration-government regulation. There exists no debate, as to whether government regulation is required. Without regulation, the creative accounting skills of Enron Corporation will still be allowed, Ponzi-schemes will run amok. The dispute is to the extent of directives that are issued and their matching results. Government regulation can take three different degrees, which achieves three diverse results.
THE ILLEGITIMATE LEMONADE STAND
The first type of regulations adopted can be summed up in one word, overregulation. Every year, the United States is rumored to add 70,000 pages of new regulations. Legislations are created in this form can be downright hilarious, from the law by the state of Massachusetts in the United States mandating children to brush their teeth after lunch, to Australia where it is illegal to get drunk in a bar, right down to Canada where lemonade stands by five year olds were shut down for possessing no city permits, or in the EU where the types of horses to be eaten are specified. These situation arises from the need of the governments to micro-manage all aspects of the economy to its taste.
Excess government regulations in the normal political stratosphere, always comes back to affect businesses. In the United States, the advent of the Dodd-Frank law which was created in order to reduce the risks and frauds in the financial system has been met with much dismay. The effect of this specific law in the United State with its extreme regulation has seen the creation of just three banks since the inception of the Dodd-Frank law in 2010. SME’s in the European Union constantly complain about the large regulations affecting them and sending them out of the markets, most recent example was the protest by German SME owners. The major problem of overregulation is the fact that regulations makes it difficult for new firms to enter the market and small firms to survive the extra costs of such regulation.
Another problem of overregulation is the restriction it imposes on business activities. Take for example, the continuous costs to be incurred by businesses in hiring a law firm to understand the new parameters set by the law, and the extra costs businesses incur in order to bring their businesses up to line of regulatory demands. There also comes the direct cost of policing such frameworks for the governments , the United States possesses eleven different bodies asides fifty other state banking agencies just for the finance sector. The total number of the entire regulatory agencies in that country alone are appraised to be over three hundred, the costs of running such agencies, salaries and other administrative costs were estimated by an independent study at $1.88 trillion.
In short, the effects of overregulation by businesses is to stifle businesses and to add additional costs for the taxpayer in financing regulatory bodies. Governments which fall in this category, or the “nanny” states as they are called, are ensuring the full benefits of limited government intervention are not enjoyed.
EXPLOITED WORKERS AND PONZI SCHEMES
On the other hand is the problem of under-regulation. This difficulty is peculiar to developing nations, its major roots are in poorly drafted and off-color planned policies. The effects of under-regulation can be seen in the employment laws of a nation. Take Nigeria for example, its labor laws are drafted from the Labor Act of 2004. The labor act legalizes the most outrageous of things, there are conditions given that allows businesses to forgo payment of the minimum wage, on discrimination issues, there are no specific legislations that prohibits discrimination or harassment in the employment context. The employment relationships can also be terminated at will by the employers, due to no specific law specifying effective conditions. The consequences of this poorly written code, is the point that workers in the country are exploited in every possible way. The exploitations range from non-payment of salaries due, to unjust dismissals by organizations, to terrible working conditions and so on.
Even with the consistent improvement of labor laws in Latin American nations, practices such as child labor, social discrimination, racial discrimination and other forms of discriminations are rampant in such nations. The effects of weak labor laws in any scenario leads to businesses, attempting to incur reduced costs in every possible way, even if it means, exploiting workers in the worst way possible.
The absence of strong regulation in the finance sector also translates to the appearance of financial crisis that would have been easily avoided in the presence of effective legislations. Ponzi-like structures that could never have surfaced in advanced economies now due to numerous acts and laws, are ever-present in economies. In Kenya, for example, According to the 2009 Kenyan Task Force Report on Pyramid Schemes about 148,000 investors invested funds in 271 recorded pyramid investment schemes involving $93 million, a similar occurrence occurred in Columbia where as many as 4 million Colombians invested over US$1 billion in pyramid schemes in the mid-2000s. The case of MMM in Nigeria where over $59 million have been lost. None of the countries listed above have implemented any measures to avoid a repeat of such an occurrence.
THE WONDERFUL MIDDLE
There is a concept in law and economics termed elevator pitch. This concept speaks about finding the middle ground between overregulation and under-regulation. The costs of both forms of extreme regulations produces a considerable ill to any economy or its citizens. They also show the need for effective regulation, a form of regulation that does not suppress businesses, nor leads to exploitation of the every-day citizen. The regulation that is needed would lead to enabling environments for businesses and ensuring the touted benefits of a laissez faire policies are enjoyed.
It is up to the legislative body of the nation to realize the power they possess. Misuse in either over or under-regulation would possess economic cost to both country and its citizens. The best criteria for regulation might be the tenets of Occam Razor, where the best solution to any problem is the simplest solution. Therefore, lawmakers avoid under-regulation by providing a solution and overregulation by using the least complex method.
