EKIP– Expert Club for Economics and Politics A Different Opinion
The big economic problem the world faces is linguistic semantics. The word “regulation” is now understood as “government regulation.” We are unaware of the alternative: consumer regulation. This is a problem because we accept so much government intervention, when in fact we would be better off without it.
We demand some kind of regulation in order to achieve orderliness and predictability in markets, satisfactory quality and affordable prices for goods and services. And because we believe that government regulation is the only way to achieve these goals, we pass a wide range of unnecessary and usually counterproductive laws.
But state regulation is not the only type of regulation.
Regulation, in its essence, means creating some kind of correct, methodical and correct system that maintains a certain standard and controls in accordance with given rules, similar to a thermostat regulating the temperature. Market forces carry out this regulation. Competing producers offer a good/service on the market, customers choose from the various goods/services offered, after which the suppliers respond to consumer desires. This process is the true market regulator.
Markets control prices
Let us give an example to show that the market regulates itself. This is such a common phenomenon that many people do not even notice it. In healthy industries, market forces are the only regulator of prices (a common phenomenon in economics textbooks is that when governments start to limit prices, the result is a surplus or a shortage). If someone offers good X for 2 leva, then his competitors who want to continue offering their good X will not be able to demand 3, 4 or 5 leva for it. Everyone will have to offer good X around that 2 leva. There is a regulation of good X. This regulation is carried out through the reaction of sellers, triggered by the actions of their customers and competitors.
Markets control quality
The same is true of quality. Buyer A will not buy food from seller A that is not as fresh and durable as his competitor, seller B, offers to the same buyer A. Seller A may be willing to sell food of questionable quality, but customers will not allow it. Customer preferences and the actions of seller A's competitors regulate even the quality of his food products. Competitors cannot afford to turn away any potential customers, so they must maintain satisfactory quality. In this way, market forces regulate quality.
Legislative regulation limits the effect of consumer regulation
The result of consumer regulation depends on legislative regulation. The greater the interference of legislative bodies, the less important consumer regulation is. Imagine a monopoly seller of good X. In such a situation, in the absence of competition, he can offer at whatever price he wants, because buyers have no one else to buy the desired good X from. The same situation would occur if a ban were imposed on the import of good X. The result would be to allow local producers to reduce the quality of the good or increase the price, because they would not have competition from foreign markets.
Freedom of exchange reinforces regulation. When competing food sellers are free to sell and customers have free choice among many sellers, prices and quality of products are tightly regulated. This regulation, driven by market forces, is weaker the less free markets are.
It turns out that we are faced with a paradox: the less a market is restricted by government, the more it is regulated by market forces and therefore the freer it is. And conversely, the greater the government regulation, the less that of market participants.
But we are not faced with a choice between having or not having regulation. We are faced with a choice between what kind of regulation it is: regulation by legislators and bureaucrats or by market forces; regulation by limiting the right to choose or by exercising that right.
There is no unregulated market. If a market is free, it is strictly regulated by the free choices of its participants. The actions of each individual participant regulate and influence those of the others. Government regulation is not the only type of regulation. Market forces can also regulate. Realizing and sharing this fact, therefore informing the public through lectures and conversations, are key steps towards greater economic freedom.
What is the benefit of this semantic change – that the word “regulation” should not only mean legal, but also consumer regulation? To get to the question of which regulation is more effective. To get to the thesis that consumers and competition regulate better than the government, we must first be aware that they can regulate at all.
