by Neville Kennard, preaching and practising capitalist
There are plenty of people, some in government and some in other areas, who look for signs of so-called “Market Failure”.
Politicians like to find “something to do” and seeking out an examples of Market Failure is the perfect excuse for some intervention, some new regulation. They can be seen to be “doing something”.
Bureaucrats too can find their self-interest is enhanced by discovering, or being made aware of some Market Failure.
And the business community also can find that if they can induce bureaucrats and politicians to rectify some difficulty in their business or industry by labelling it as “Market Failure” then their self-interest can be served.
Politicians look for popularity, votes and support by identifying with some cause. The Trade Unions are masters at revealing Market Failure to politicians, usually with increased pay, allowances or benefits in mind. A good Market Failure for the Unions is in the area of Workplace Safety. Bureaucrats too love to impose licensing, permits, safety regulations (and costs) so as to build up their fiefdoms. And established businesses, if they can find something that will reduce competition, will seek political and bureaucratic support for “Safety” or “Customer Protection”, often in the name of Market Failure.
Businesses and industries with a product or service that will be more widely accepted if it is regulated into use, made compulsory, have an incentive to get legislation passed to require its use, by “Certified Suppliers” if possible.
All of this imposes costs, and can limit competition. And there are always Unintended Consequences following any intervention. The Unintended Consequences can ripple out for years, for-ever, and in ways and areas that can’t be predicted. Minimum Wage Laws, for example, that are intended to give low-paid workers protection against “greedy bosses” and give them “a decent living wage”, have consequences like putting some marginal workers out of work, thus reducing their dignity, and putting them on the dole; which has effects on the tax burden of those still employed. Minimum Wage Laws also deprive the community of the services of such low-paid workers and the community is thus disadvantaged.
“Certified Suppliers”, usually licensed to standards from within the industry, limits the competition and thus increases the profits of existing suppliers and restricts new entrants.
The Unintended Consequences are always to the detriment of the consumer, the community, the least well-off, the new entrepreneur, to competition and innovation. It is almost impossible to identify all the Unintended Consequences that flow from any restriction and regulation and tax or fee as each one seeps and permeates and infects every customer, worker, supplier in the entire chain of supply.
A cosy cartel of businesses and bureaucrats and politicians become a kind of “Ruling Class” in the particular industry. Once introduced, regulation and licensing and certifying becomes the norm until no-one can remember, or even envisage, a situation where regulation or licensing did not and could not exist.
Thus any sort of perceived Market Failure becomes an excuse for intervention. And then the Unintended Consequences create their own further Market Failures, thus calling for more interventions, more unintended consequences, more market failures … and so it goes.
Market Failures, if they ever really exist, always self-correct, mostly quite quickly in a free market. The effects and problems of the perceived Original Market Failures are dwarfed by the ill-effects of the interventions and regulations and licensing and Unintended Consequences that follow.
Strange, isn’t it, that politicians and bureaucrats who trust us (require us even) to vote and to pay taxes, don’t trust their citizens to look after themselves and their business and their customers.
Ah — Market Failure; what would we do without it?
Neville Kennard also wrote on market failure in:
“Market Failure”: Just what the government ordered!
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- The Tragedy of the Tax Pool Commons
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