Competition is Good; Regulation is Evil!

I was asked to comment on the following Facebook statement of the leader of an absurd pro-parliamentary political movement: “Competition is good, but there needs to be some regulation in certain cases, since some of the things that people do when competing against each other can be wrong — like cheating. Cheating is in an individual’s self-interest, but cheating is NOT in the collective group’s interest once everybody cheats or engages in unscrupulous behavior just to get ahead, hence the need for rules, regulations and the implementation of the same.”

Before commenting on the issue of cheating as part of “an individual self-interest”, because that is an ethical issue, I will first comment on the issue of competition versus regulation. I gave the following answer to my questioner:

When one resorts to cheating in a highly competitive market environment, you don’t need to legislate or enforce regulations, you only have to apply existing laws. Since the term or word ‘cheating’ here is not clear, I assume some possible examples could be: using political connection to beat competitors, misrepresenting product contents to induce consumers to buy, employing corporate espionage, etc. 

There are established laws designed to penalize any of these acts, thus a society doesn’t need to enforce regulations. For instance, if a company that misrepresented the contents of its products caused harm to its consumers’ health, then the latter had the right to sue that cheating corporation and ask for huge damages. Thus, there’s no need to implement or adopt regulations.

Also, if a ‘weak’ company tried to use political connections to beat its competitors, then this merely shows a society needs limited government, not regulations. Regulations create ‘robber barons’ or cronies and cause cheating and corporate crimes.

[That guy] should have made clear examples of cheating to support his utterly flawed, ignorant premise.

Also, I believe there’s a need to tackle the difference between protection of rights and regulations. Like I said many times before, the only proper function of government is to protect rights, not to regulate them. Regulation is not the same as protecting rights. In fact, regulations, in many cases, limit and violate rights and create crimes and criminals. A good example is the alcohol regulation in the United States in the 1920s and the rise of criminals and syndicate leaders like Al Capone. Another example is the regulation of drugs and gambling that paved the way for the rise of mafias and criminal syndicates.

So a distinction between regulation and protection of rights must be made to answer and counter the growing confusion of pro-regulation groups and advocates. What is regulation in the first place? This source defines regulation in the following fashion: it “is administrative legislation that constitutes or constrains rights and allocates responsibilities.” Also, this source definesregulation as “a set of one or more rules or standards that direct or restrict conduct, with some provisions for enforcing the standards by punishing violators.”

What is clear is that regulations limit, restrain or direct certain rights, conducts or activities, which are usually economic in nature. Common examples of regulation include wage ceiling, controls on market entries, pollution effects, sanitation, prices, development approvals, employment of certain people in certain industries, labor standards, standards of production for certain goods, the military forces and services, among others. Most regulations are found in general statutes, ordinances, and special laws.

By contrast, the rights-protecting role of government seeks to protect or safeguard the rights of individuals, such as their right to life, liberty and property. This role, which is constitutionally mandated, can be found in general statutes like the Criminal Code, the Civil Code, the Family Code, and other Special Laws. For instance, the Criminal Code in the Philippines defines crimes and provide a penalty for crimes committed. If this rights-protecting role of government is the same as regulations, as most pro-regulation fanatics claim, then how can a government regulate crimes like murder, rape, homicide, theft, robbery, etc? Can a government possibly regulate these crimes? I don’t think so.

In reality, regulation is a good example of preventive law, because it treats individuals, groups or business entities ‘guilty’ until they are proved innocent. Preventive law is defined as a legal mechanism that “seeks to anticipate and prevent legal problems and litigation in a broad scope of areas, such as environmental law, sex discrimination, computer law, estate planning, corporate compliance, business planning, and property transactions.” History informs us that the legal hallmark of a dictatorship is preventive law.

To answer the so flawed a statement above- which states “there needs to be some regulation in certain cases, since some of the things that people do when competing against each other can be wrong — like cheating”- NO, you don’t regulate cheating; you penalize it. If ‘cheating’ means taking undue advantage of others through the use of illegal machination or schemes or disregarding other people’s rights, then I believe there are existing rights-protecting laws that can be applied to penalize such an evil act. For instance, one good example of cheating in the tech industry is stealing of patented technologies or works to beat the innovator or other market competitors. Here the government doesn’t need to impose new regulatory laws to prevent cheating; the government only needs to implement the existing Intellectual Property Rights laws. Laws exist to protect rights, not to negate or regulate them.

The best way to punish cheating corporations or firms is free market competition. In a high-level protectionist economy like the Philippines, corporations in such protected industries like telecom, mass media, public utility, etc., do not have the incentive to improve their products and services, offer competitive market prices, and innovate. And the reason why we have high priced and very slow internet connection in the Philippines is protectionism.

Such a poor mindset- that we need few regulations to prevent or penalize the evil effects of greed or self-interest like cheating or anti-competitive activities or strategies- is the very reason why Antitrust law is being pushed in the Philippine Congress by statist lawmakers. According to its provisions, this antitrust law proposal seeks to prohibit such acts or activities like monopolies, attempt to monopolize, manipulation of prices of commodities, and other anti-competitive practices. This last (anti-competitive practices) includes cheating, since the word ‘cheating’ is so broad that it can produce different interpretations.

In relation to this issue (of cheating and competition), I’m reminded of this article written by American economist Milton Friedman in which he recanted his long-held pro-antitrust law position. A long-time supporter of antitrust law, Friedman finally recanted his position a few years before his death, saying “antitrust laws do far more harm than good.” Also in this published article he asked a very interesting, prescient question that’s very much consistent with this present discussion: “is it really in the self-interest of Silicon Valley to set the government on Microsoft?” His answer is: that would be suicidal.

Friedman said:

My own views about the antitrust laws have changed greatly over time. When I started in this business, as a believer in competition, I was a great supporter of antitrust laws; I thought enforcing them was one of the few desirable things that the government could do to promote more competition. But as I watched what actually happened, I saw that, instead of promoting competition, antitrust laws tended to do exactly the opposite, because they tended, like so many government activities, to be taken over by the people they were supposed to regulate and control. And so over time I have gradually come to the conclusion that antitrust laws do far more harm than good and that we would be better off if we didn’t have them at all, if we could get rid of them. But we do have them.

Under the circumstances, given that we do have antitrust laws, is it really in the self-interest of Silicon Valley to set the government on Microsoft? Your industry, the computer industry, moves so much more rapidly than the legal process, that by the time this suit is over, who knows what the shape of the industry will be. Never mind the fact that the human energy and the money that will be spent in hiring my fellow economists, as well as in other ways, would be much more productively employed in improving your products. It’s a waste! But beyond that, you will rue the day when you called in the government. From now on the computer industry, which has been very fortunate in that it has been relatively free of government intrusion, will experience a continuous increase in government regulation. Antitrust very quickly becomes regulation. Here again is a case that seems to me to illustrate the suicidal impulse of the business community.

Now I come to the hard part: Why is there that suicidal impulse? Why do business people behave that way?

The best I answer I can give to Friedman’s last question is: they behave that way because they somehow believe that self-interest is evil thus it must be regulated. Others have this notion that it is in their self-interest to use the government against their competitors. But such a notion, in reality, is self-destructive. History has it that it is not your business which you try to grow and support when you turn to the government for protection and to secure political connection; instead, it is state force or arbitrary government power which you grow and support.

In regard to the issue of “cheating”, whether it is  motivated by self-interest or not, I made the following statements in my previous blogs:

“A business or corporation cannot achieve corporate success by cheating on its consumers or by taking advantage of others. Businesses that make profits from engaging in fraudulent activities, selling substandard products at high prices, offering low quality products and services will not be able to achieve long-term success. In a free market society in which anyone is free and has the opportunity to work, to make money, and to start a business, no one or no company or corporation could ever succeed by means of force and fraud and/or by charging exorbitant prices.”

If you want to succeed in business, don’t cheat:

“Do you want to live your life as a moral being? Then work. Don’t steal. Lead a productive life. Don’t cheat on or take advantage of others. Always think that you live in a human society with law and order. If you commit fraud or crimes, there are laws in place to punish you. Also, let me stress that ethics or morality is not biblical in nature. It does not come from god or divine revelation. The concept of ethics is the ultimate result of man’s (or Aristotle’s) discovery of man’s nature. The fundamental question here is: Why does man need values? Why does he need ethics? Well, in order to to live as a rational being and to live most fully a life that is proper to man.”

But perhaps cheating ‘is’, if that guy is part of an immoral, unjust, evil society. For a businessman, cheating will destroy him. For a politician, cheating ‘might’ cause him his reputation, his political office, or terms in jail.



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