Good Regulation is the Hallmark of a Developed Economy - too much Deregulation will lead to Corruption, Exploitation and Poverty
We are very averse to bureaucratic control of industry and commerce. It has been proven time and time again that elaborate frameworks of process and procedure to control the activities of complex markets merely cause the emergence of whole industries devoted to complying with or avoiding the rules.
But, all developed economies need a sound legal framework and institutions that will achieve a reasonable balance of benefit between the various stakeholders in an economy. Look what happened to the Russian economy after the fall of the Soviet system. Led by Western bankers, a control economy was suddenly completely deregulated, without any experience of a market economy in terms of culture or institutions. The result? A mighty free-for-all in which a few powerful individuals were able to become immensely rich, to the detriment of the majority. Russia has not really recovered from those disastrous mistakes yet.
In the UK, we have real problems, especially with regard to the behaviour of the financial markets and the financial services industry. This industry, despite the fact that it is a proven fact that many of its members will use the least opportunity to confuse, swindle and short-change its customers, continues to complain loudly about a system of regulation that is almost toothless in comparison with the scale of the mal-practice.
But, the answer is not more form and box-ticking or more inspectors.
We would suggest several lines of action:
- Make real incentives available to those who foster the public good. A simple example would be significant tax benefits and privileged access to company information for long-term investors which behave responsibly, so that they can contribute to the success of the companies in which they invest.
- When companies or individuals are found to have engaged in mal-practice, the penalties should be so severe that others will be really deterred from following their lead. This in practice means debarring individuals from practicing in the industry and making the financial penalties match the scale of the 'crime'. In effect, this means that when billions are misappropriated, they should be paid in penalties and returned to the victims.
We also need to vastly simplify the legal system so that individuals and companies can be investigated and indicted without having to first establish guilt - as in the USA.
- There is a real need to strengthen and give teeth to key stakeholders in the economy - in particular, this applies to those who are usually the victims of the industry/financial markets nexus.
In the same way as institutional investors and their representative bodies have been given/taken the power to call managers to account, so should the representatives of savers/ pension fund members and other customers have bodies empowered to investigate and call to account those who are supposed to be looking after their financial well-being.
- In relation to government, it is now pretty well established that administrations of each of the two major parties become completely hamstrung from taking effective action when they are in power. We will not bother with the reasons why now.
We would strongly recommend that real regulatory power to investigate and make rulings should be given to Parliament, as the body most representative of all the people. A powerful extension of the Select Committee system, representing all parties, would seem to be the best solution.