The Indian Economy Blog

November 28, 2005

Why we oppose regulation.

Filed under: Regulatory reforms — Ravikiran Rao @ 6:25 pm

When I wrote my post “Most Blogs are terrible” it is only the patient who understood that my my actual target was regulation, not the quality of blogs. Now I am afraid that Manjunath’s tragic killing has brought things into sharper focus. Amit points to this article by Ila Patnaik, which argues that it is distorted policies that killed Manjunath.

The choice is clear. On the one hand, you can listen to the reformers, who say that competition is better than regulation in ensuring quality. You can see the obvious evidence that we are pointing to, that regulation does not ensure quality; it only engenders a patronage system. You can agree with us when we say that this patronage system has meant that success in the petrol pump business goes to the most ruthless criminals, not to the honest or to the efficient.

On the other, you could ignore the evidence and repeat the litany. You can say that the problem is not with regulation, but with their implementation. You can say that this only proves that we need more regulation. You can point to the criminals who run petrol pumps, and say, “These are the guys who will run loose if you remove all regulations. Do you still say that a free market is the way to go?”

Which do you choose?

1 Comment »

  1. “These are the guys who will run loose if you remove all regulations. Do you still say that a free market is the way to go”

    If you remove regulations, there will be more economic activity and more jobs. If there are plenty of well paying jobs, most criminals will quit their criminal activity and will seek real jobs.

    Comment by sv — November 29, 2005 @ 6:54 am

  2. A very intersting article. Some comments and questions:

    0. this thing has been around!
    http://www.ask.com/web?q=diesel+adulteration+with+kerosene+india&qsrc=0&o=0

    1. Retail price of diesel is 30.45 Rs/litre and of (PDS) kerosene is 9.05 Rs/litre
    http://www.ppac.org.in/oil_prices_taxes.htm

    Given that kerosene is subsidised around Rs 10/litre
    (missing citation, will put it in when I find it :) )
    that still leaves a Rs 15/litre price difference.

    So subsidy or not, adulteration there will be?

    Comment by Neeraj Krishnan — November 29, 2005 @ 9:40 am

  3. Regulation, by itself, is not wrong, or harmful. It is surely needed in complex industries, where people are unable to determine for themselves if the provider is doing right. Telecommunications, for instance….petro products is another.

    But, our problem comes from faulty method of regulating. Putting up laws is not sufficient enough to regulate. Monitoring and feedback systems are what complete the cycle, and that is rarely in place. If it is in place, it is inadequate, or improper, like the IOC inspection system.

    What is needed is the ability for the market, and the consumers to provide the feedback. Nothing will hurt like losing customers, and no amount of inspections from suppliers is going to matter as much. Now, the challenge is for the regulator to find ways for the market to know details and provide appropriate feedback.

    Comment by Theesra — November 29, 2005 @ 9:46 am

  4. If there are plenty of well paying jobs, most criminals will quit their criminal activity and will seek real jobs.
    I am not into much of economy and all that. But, I think this is clearly wrong. If this was/is the right way, human race was/is never that dumb not to realise it.

    Comment by Zero — November 29, 2005 @ 11:55 am

  5. On this topic, here is a very pertinent link on the law on unintended consequences: http://www.econlib.org/library/Enc/UnintendedConsequences.html

    Comment by Vivek G — November 30, 2005 @ 10:19 am

  6. I dont know the story about the petrol pumps ruled by ruthless criminals.
    But regulations in industries is by and large a bad idea. (exceptions are there. antitrust laws, patent protections, network externalities etc., and many times it becomes tricky to enforce regulations in these cases because of the lack of complete information. i.e. a need for regulation is obvious but how to implement it isn’t because even the government doesnt have complete information)

    regarding free market not guraneeting quality is basically missing the point. Free markets are there to produce efficient outcome. not to gurantee quality. Most of the times it will ensure quality.

    Another thing, one of the reasons why free/competitive markets might not work is because of the absence of a body to enforce contractual obligations and make sure laws are followed. A wek or corrupt justice system is more likely to be a problem in case of thugs ruling in market (you can’t really say that its a free market anymore if contractual obligations are not being enforced). And the remedy should be to improve the justice system and put in place a system to make sure contactual obligations are followed and it shouldnt be regulations

    Comment by ik — November 30, 2005 @ 8:29 pm

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