Benefits of Regulations Outweigh Costs - Assignment Example

To regulate or not to regulate To regulate or not to regulate is a well debated question and that has been the case for a very long time. According to BIS (2011), a regulation actually refers to a legal provision which in effect limits or constrains a particular right. A regulation also limits a duty or allocates a liability. There are various forms of regulation that may include: contractual obligations that are legally binding to several different parties, legal restrictions that are cultivated by a government or other mandated authority, self-regulation requirements set up by a specific industry for instance a trade association, there is also regulation of norms in the society referred to as social regulation. We can safely then conclude that regulations are actions that impose sanctions and may include punitive measures set in the country’s laws such as fines in the case of not being adhered to. Economic regulation is practiced by most governments the world over in an effort to maintain a competitive advantage for their respective countries in certain areas as well as to protect their citizens (consumers) interests. In the UK, economic regulation is usually meant to help promote effectual competition in areas or sectors that this is practicable. It is also aimed at providing avenues for effective and healthy competition. However the cardinal role that all this revolves around is the protection of the consumer’s interests which are put first especially in areas that have no immediate need for the introduction of competition. With a view to promoting fairness and efficiency, there has been regulation which has seen the prices that can be charged by dominant companies being capped. This has been done while at the same time providing them with a return on their investments which means the regulators guarantee the consumers benefits while not putting businesses out of business (Charles, 2011). Economic regulatory reforms have emerged as a trend and this is expected to carry on as a consequence of the globalization of markets. As a result of the same, regulators have become increasingly forced to implement this as a result of the increased mobility of capital and labor (Lee and McKenzie, 1991). When the regulators choose to maintain the prices significantly higher than the costs of production, then firms also consequently think about relocating to relatively more hospitable economic destinations or try to locate new methods of bypassing the system. A good example is the state-supported telephone monopoly that still exists in some countries. More and more consumers and businesses are crafting newer ways to circumvent these monopolies which is aided by utilizing the internet which abounds with service companies offering cheaper long distance calls. As a result, this puts pressure on governments to do away with regulation and lean towards privatization. Regulation in most sectors is declining as a result of rapid globalization but not all regulation is on the wane, however. In many countries, the citizens have demanded for some degree of regulation in some important sectors they believe the government should not totally deregulate. Areas such as public health and safety standards and even in environmental protection need some form of government intervention to ensure that cooperate greed does not prevent vital services and standards from being attained. Because consumers are also getting much wealthier, they are now demanding for more and more services that will ensure them of such things as improved sanitation, cleaner air and safer water. Such demands will keep rising and forcing the political class to take steps to providing these amenities with an ever increasing efficiency (Guash, 1997). Looking at some evidence, a cost-benefit analysis taken of major American federal regulations over the past decade went a long way to show that advantages of regulation far outweighed the costs in most cases. The Office of Management and Budget's 14th annual report to Congress on regulatory costs also concurs on this point. It is pointed out that since President Obama's gave an executive order in January which requires that all agencies review their existing regulations to weed out excessive burdens or obsolescence, the total yearly benefits were between $132 billion and $655 billion, at the same time, the projected yearly costs are in the cumulative region of between $44 billion and $62 billion (Charles, 2011). The figures speak for themselves here. In a recurring theme, many countries have political concerns that are mainly concerned with limiting the undesired increases in tax. These countries are as a result introducing more incentives so as to be able to enforce some form of regulations. It therefore means that when the legislators limit themselves on taxation and spending, then the use of regulation can be useful in helping to achieve certain political goals such as redirecting wealth towards certain interest groups targeted for their expected reciprocal political backing. Here the regulators have succeeded in switching regulatory requirements whose costs will not be directly footed by the taxpayers with real but hidden costs. This is beneficial to the government since their budgets are not significantly affected when the mandated change comes into effect and the costs are relatively low. Again there is the issue of how beneficial regulation can be to some sectors that are concerned with citizen welfare. For instance in the US, we can measure the impact of regulations from data on the number of lives a regulations enactment is possible to save. A review of a number of final and anticipated regulations shows that the amount that is spent on every premature death which had a chance of being avoided by the use of the projected regulation varies over eight different orders of scale calculated using (1990 dollars); from roughly US$100,000 to over US$5 trillion (Morrall, 1986). From these projections, it is safe to say that regulations that can halt this pre mature loss of life can be instituted to kill two birds with one stone; prevent premature deaths and save the taxpayers dollars. Studies conducted have also tried to quantify possible benefits. The studies have been conducted in the US and also abroad in a variety of different countries. The studies show for instance that if the current U.S. investment in 185 life-saving interventions was re allocated, it could help prevent about 60,000 deaths, or double the current state of affairs (Tengs and Graham, 1996). Several economic arguments in support of regulation do exist (MacAvoy, 1992). They are mostly based on the argument of correcting for market failures or on considerations of equity. Concerning cases of social regulation, one of the main arguments is that companies may fail to take into mind the complete social costs of their activities unless there is some intervention from the government. Let’s consider a manufacturing firm; the firm may pollute excessively if there is no fear of incurring imposed implicit or explicit punishment for pollution it commits. Another good example involves the case of workplace safety where the personnel might lack in sufficient information about hazards such that they can not make informed choices that will prevent them getting harmed. In these cases, direct regulation ensures that there is the availability of the required information. Where economic regulation is involved, the main economic underlying principle has been concerned with the possibility of enhancing efficiency of production. Economies of scale or a big scope have been shown to be better supported where a single firm is engaged in the production instead of where there are many competing firms. This can be achieved through regulation and also so as to keep its monopolistic powers in check; regulation would also have to be enforced (Morrall, 1986). So it is my view that despite being demonized wholesale by many people, regulation is not all bad and does in fact merit the support it needs to be effective. Of course I am not advocating for the full draconian control of the economy but certainly a minimally intrusive version of regulation needs to be enforced a bit more than is the case now to ensure the consumers and citizens of the world economy are not at the mercy of the economic globalization juggernaut. References Charles, C. (2011). Economic benefits of regulations outweigh costs, OMB says: retrieved from http://www.govexec.com/oversight/2011/06/economic-benefits-of-regulations BIS, (2011). Principals for economic regulation. Retrieved from http://www.bis.gov.uk/assets/biscore/better-regulation/docs on 3rd Nov 2012 Guasch and Robert H, (1997). The Costs and Benefits of Regulation: Some Implications for Developing Countries. University of California. San Diego. Lee, Dwight R. and Richard B. McKenzie (1991), Quicksilver Capital: How the Rapid Movement of Wealth has Changed the World, Free Press, New York. MacAvoy, Paul W. (1992), Industry Regulation and the Performance of the American Economy, W.W. Norton & Co., New York, New York. Tengs, Tammy O. and John D. Graham (1996), The Opportunity Costs of Haphazard Social Investments in Life-Saving, in Risks, Costs, and Lives Saved: Getting Better Results from Regulation, ed. Robert W. Hahn, Oxford University Press and AEI Press, New York. Morrall, John F. (1986), Review of the Record, Regulation, 10, 25-34, November-December. Read More