Nicos E. Devletoglou: Over-Zealous Regulation Sabotages Progress in the West

Nicos E. Devletoglou
Emeritus Professor of Economics, University of Athens

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The behavioural finesse generated by our free-market system competitively flourishing in the west with classic common sense and active liberalism – normally emboldened by a minimally intrusive presence of the state – is currently under siege. The reversal of fortunes began with the relatively recent emergence of an aggressive “cops and robbers” mentality largely in response to a rare batch of bad decisions that originally led to the global financial crisis. Though also a way of life by now. Evident in the daily conduct of business between governments and the private sector. Particularly in the EU and the US, this extraordinary malpractice has since developed into an obsessive pursuit of regulation: posing a serious new threat to fundamental freedoms consistent with economic progress.

Steadily, too, things are getting worse with an increasing population worldwide of government regulatory commissions remarkably granted broad legal authority. Included here are the crowds of dirigent euro-bureau-technocrats in Brussels who have already come pretty close to establishing an austerity-depressed and certainly over-regulated under-capacity equilibrium as the new normal for the European economy. Entrepreneurial vigour and initiative, noticeably in retreat in the eurozone, are slowly asphyxiated (with the propensity to invest seen diving to unprecedented lows) by the unforgiving plethora of regulations specifically enforcing so-called compliance: with doubtful legitimacy as well. But, after tearing down the Berlin Wall only a few decades ago, isn’t it almost uncanny we should suddenly be so preoccupied today erecting “walls of shame” of our own all over the international financial and economic landscape?

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We are busy succumbing, it appears, to a widespread heavy-weight réglementation that stealthily subverts otherwise vibrant behavioural expectations today: which, as we know, determine the level of tomorrow’s economic activity and growth. A nasty piece of work from countless committees and subcommittees “at work”, both in the EU and the US, presumably aiming to deal with the occasionally arising “issues” in a free-market system such as insider trading, bribery and corruption, “mis-selling” of complex products, restrictive cartels, etc. Why, however, couldn’t these obvious aberrations from the twists and turns of everyday life in business be more efficiently and far more elegantly dealt with in a civilized modern society?

As, for example, by innovatively re-inventing a “moral suasion” policy? In terms both of timely and binding catalytic pronouncements – as part of a wide name-and-shame strategy – subsequently closely monitored and fully publicized by more legitimate sources such as Central Banks or Open Market Operations Committees etc. Hefty fines and other exorbitant pecuniary penalties running into billions (of misallocated resources) are nowadays commonplace instead. Jolting if not also derailing many of today’s leading companies – large and small especially in banking and shadow banking -into growth-averse compliance in this increasingly unrealistically regulated new environment. On the other hand, I must say, New York’s ambitious banking regulator, Mr. Benjamin Lawsky, should perhaps be commended here for at least turning his sights more on individual “rogue” employees within respectable institutions than automatically campaigning against the institutions themselves.

Today in the US, companies even in an open internet are targeted by an impending “net neutrality” rule that will soon be determining access to their networks. Just as the recently resurrected Financial Services Authority in the UK currently presenting another fresh threat to confidence. Holding close to its chest a still secret schedule and details of an imminent “investigation” of a pillar of the British economy: the motor industry and thousands of its suppliers or subsidiaries. No one knows how far the FSA is prepared to stretch its so-called “consumer-centric” self-determined terms of reference – but no doubt it will be usurping in the process the primary business of the free-market system. Which is to establish independently a fair pricing policy that directly guarantees, say, commission disclosure or quality financial services freely covering the entire industry. But as governments in Europe and the US are even at this stage tightening laws and regulations further backing their “I-say-so” enforcement procedures, this bizarre new attitude, apparently here to stay, translates into persistent and significant falls in aggregate demand that only prolong anaemic economic activity and custom-made uncertainty thanks to over-regulation as such.

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