Less regulation, not more

Let’s list the industries that get the most consumer complaints. Banks, railways, energy suppliers, water companies, financial services, mobile phone companies, insurers.

Funnily enough, these are also the sectors that are most tightly regulated by government. Spooky coincidence or what?

What if – and I know this is a long shot and I only have flimsy evidence, like nearly 10 examples of the biggest industries in the country – what if regulation causes industries to become badly run? I know this is a profoundly shocking idea. It’s far more likely that the people running these companies are simply greedy money-grabbing capitalist bastards. So let’s look outside the for-profit sector. Let’s consider other heavily regulated industries that are not-for-profit.

Like education, for example. Or the National Health Service. Do these ever receive complaints from users? OMG, they do! Although, curiously, privately-run schools, hospitals and universities almost never seem to get complained about.

The empirical evidence is starting to pile up. Could I be on to something? It hardly seems possible. Surely regulating is the way to ensure that companies and organisations do exactly what we want them to do?

Or does regulation make it impossible for normal rules of competition to work in an industry? If the regulator tells a company that they’re only allowed to make a 5% profit margin, but that they can always make a profit, what’s the incentive to do anything innovative or cut prices?

Can you remember when a new bank was last formed? I can’t. How hard would it be to set up a new bank? You’d need a massive team of experienced bankers and compliance specialists with enormous capital backing to start up a new bank. Guess what? All those people are already running existing banks. The Co-Op recently decided not to expand into the UK banking sector, citing over-regulation as the reason.

What about a new energy generator or a new rail company? Only a handful of companies are able to compete for the government’s rail franchises. The rules give privileges to the established players and prevent or deter other companies from entering the market.

It’s not surprising that there’s such a lack of competition in these critical business sectors. The more you regulate a market, the more distorted and dysfunctional it becomes. But surely everyone already knew that?

Now before you flame me, don’t misunderstand what I’m saying. I’m all for rules that ensure free and fair trade, consumer rights, health and safety and “polluter pays” regulation. I’m not advocating a chaotic free-for-all. But when governments start telling mobile phone companies how much to charge for calls and electricity companies how many different tariffs they are allowed to offer their customers, something has gone badly wrong.

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