Aimed at rectifying “market errors” and protecting consumers, state regulation is usually cloaked with the notions of “public” benefit and “public” interest. These notions are rather equivocal, if not woolly. This makes them very handy for regulators.
Do consumers really benefit from state regulation? Take, for example, state quality control. The major argument for state quality control is that in the modern world professional services are very complex, and consumers cannot assess their quality or likely effects on lives and health (e.g., car maintenance, repairs of household appliances, medical services). Entrepreneurs, on their part, maintain that, if adopted voluntarily by the business community, quality standards (obligations) would oust from the market those who turn in a poor performance or engage in unfair practices.
Whom-bureaucrats or entrepreneurs-should consumers believe?
Shrewd individuals will figure out that both attitudes are mistaken in that the problem is not with the quality of goods and services per se, but with a lack of information about it. It is very difficult indeed to choose among goods and services if one is ignorant about their quality and other attributes. In a free market, potential needs give rise to new products and markets and enhance competition. A lack of any good or service represents a good niche for new businesses. If information is lacking, there is a potential market for suppliers of information, which may assist consumers in identifying services of better quality and lower prices.
The apologists of state regulation deplore the correctness of private sector-supplied information on market prices and quality. Consumers, however, realise that the market is much faster and more effective in responding to problems than government intervention.
Those who clutch at state regulation like at straws face the dilemma “how to regulate.” The authorities resort to handling and supervising the quality and prices of services and goods. They enact laws on consumer right protection and impose petty regulations on the safety of goods, advertising, and publicity. These laws, consumers are told, are designed to protect them from errors and fraud.
However, protecting citizens from miscalculation and deceit is not an easy job for the state to do. In safeguarding consumers’ interests and quality, the spokesmen of state regulation require additional reports, audits, and public control. In reality, this is a quixotic battle against windmills, a battle which only expands state regulation. Mandatory disclosure and control of information fail to prevent wilful deceptions. Likewise, it is close to impossible to protect reckless consumers. Failing to attain the goals attached to them, regulations strike hardest at honest businesses, which come under additional control and sustain extra expenses.
It is an axiom that state regulation translates into redistribution: Some consumers win, others suffer losses. The ultimate effect is reduced wealth. State quality control, by way of illustration, hurts badly consumers. It forces producers and sellers to trade only in high-quality goods. This means higher prices. Higher prices, in turn, prevent low-income individuals from satisfying their needs. Due to this equality of quality, consumers cannot choose inferior but cheaper goods. Forced requirements for high quality and control bring additional expenses for suppliers, increase the degree of business risk and undermine competitiveness. This hinders business growth and leads to price increases.
State regulation of and intervention in market processes erect artificial barriers for businesses and frustrate entrepreneurs’ efforts to serve consumers. State regulation cannot hide under the cloak of the common good, for it reduces market efficiency and constrains people in their attempts to gain maximum benefits.
“Public” benefit and safety are also “championed” by those market agents who propose establishing individual “self-regulating” norms and standards for their specific businesses or services. There is ample evidence, however, that, if used within a small professional circle, quality control accommodates the emergence of monopolies and cartels. Obstructing market entry, such control erodes competitiveness and fails to enhance self-control and quality. Professional self-regulation facilitates the pursuit of group interests and curbs the freedom of market participants and information.
Just like the “control” of contraband, state regulation triggers rather than solves problems. It also places on society a heavy burden of bureaucracy. A free market provides an alternative to any government initiative to protect consumers’ interests and the common good. A free market provides safeguards which secure the interests of consumers according to their own needs. With the ever-increasing complexity of technology and services, the market brings about new services and new quality.