Moreover, there is some safeguard against complex regulatory thickets if new rules need to undergo a cost-benefit analysis. But such assessments are only incremental, whereas what is needed is a periodic assessment of the regulatory framework as a whole.
Major disasters are often the result of a failure to think in such terms, as evidenced , tragically, by the fatal Grenfell Tower fire in the UK. In new sectors, or those with a real possibility of new entrants with new technologies, regulation actually helps to create a market. For example, by removing information asymmetries about innovative products — asymmetries that are larger the more technologically advanced the products — regulation facilitates a level playing field between large incumbents and new entrants, enabling innovation to take root.
And by providing assurances about the safety or effectiveness of new products and services, and setting minimum mandated standards, regulation gives consumers the confidence to try something new. The third way in which regulation is good for an economy is precisely in its protection of consumers. If this means businesses earn a lower short-term profit, so be it.
Tough EU environmental standards impose high costs on these businesses, which might mean they grow more slowly than they otherwise would. But it is well known that GDP growth does not account for environmental externalities. All of this underscores the importance of how regulators regulate. Their actions can — and often do — harm competition and growth, while failing to protect consumers.
But that need not be the case. Recognizing the potentially large economic benefits of regulation might encourage a more sophisticated debate that moves beyond political pantomime and focuses attention on the crucial issue of regulatory design.
This article is published in collaboration with Project Syndicate. The views expressed in this article are those of the author alone and not the World Economic Forum. For example, security regulations exist to help protect against data breach, financial regulations are there to protect against fraud, and safety regulations are designed to keep workers safe.
But compliance with regulations benefits your company as well as internal and external individuals. Because regulatory compliance is such a big deal, your business needs to take a comprehensive, intentional approach to creating an effective regulatory compliance program.
Your first step to regulatory compliance starts with a comprehensive audit to determine a compliance baseline and identify where any problem areas lie. Assessing risks, for example, allows you to not only identify them and their likelihood for occurring but also their potential impact on your business.
Once you identify your weaknesses, compliance gaps, or problem areas, then you can put best practices in action. Doing so can help when it comes time to ask for budget to mitigate these compliance issues. The designated role of a corporate compliance officer CCO is gaining prominence in many businesses.
The CCO serves as the point person who champions corporate integrity, accountability, and ethics. They need to address the specific compliance areas identified in the audit listed above. Plus, they need to be reviewed regularly to stay current with the always-changing regulatory landscape.
In addition to having targeted policies and procedure tied to compliance, a key component of policy management involves the need to track when employees have read and signed your policies.
This plays a huge role in being able to prove compliance down the road, if necessary. A policy management software like PowerDMS can help you easily maintain records of all of these policy signatures. If the policy is written to address specific compliance issues, then your training should reinforce that behavior and ensure employees comprehend what they are supposed to do. When your entire workforce understands the importance of compliance and their role in making it happen , it distributes the knowledge broadly.
Your company needs to build in regular review periods and audits. Plus, your organization should seek input from subject-matter experts ideally, the CCO who can track regulatory changes and understand their impact on your business.
This allows you to continually assess the effectiveness of the program and be proactive in your actions. It helps to automate this review process so nothing falls through the cracks. It allows you to set workflows and reminders to route it to the appropriate people who need to review and make changes. Economists distinguish between two types of regulation: economic and social. For example, taxi drivers and many professionals lawyers, accountants, beauticians, financial advisers, etc.
As for price controls, for many years, airlines, trucking companies, and railroads were told what prices they could charge, or at least not exceed. Companies providing local telephone service are still subject to price controls in all states. When this happens, the activities will be pursued too intensely or in ways that fail to stem harm to third parties. For example, left to its own devices, a manufacturing plant may spew harmful chemicals into the air and water, causing harm to its neighbors.
Another kind of market failure arises when firms fail to supply sufficient information for consumers or workers to make informed choices. Disclosure requirements solve this problem, at least in principle. Although truth-in-lending disclosures seem to work well, other disclosures work less well. Few people, for example, read the voluminous package inserts that come with the drugs they take. When policymakers conclude that individuals may be unable to effectively process or act on the information that is disclosed, governments may mandate certain rules or practices.
The prime examples are limits on certain chemical exposures to workers in manufacturing plants. A large body of economic research over the past several decades has focused on regulation, and a surprising degree of consensus has emerged on several propositions. Somewhat surprisingly, policymakers have gradually paid attention to what economists have recommended and changed regulation accordingly.
To be sure, policymakers have acted for other reasons, as well—because of pressure from certain segments of the business community or from NGOs. But economists have played an important role in providing intellectual justification for the changes that have been made.
First, economists have urged that price controls be confined to situations in which a market may be dominated by one or perhaps two firms. Otherwise, if markets are reasonably competitive, there is no place for price regulation. Consistent with these propositions, the federal government in the late s and early s began dismantling price regulation of various transportation services, where there are multiple firms and thus choices for consumers see airline deregulation and surface freight transportation deregulation.
Still, there are pockets of economic activity— insurance is one notable example—where some kind of price regulation remains, even though the underlying markets are fundamentally competitive. Similarly, economists have encouraged policymakers to reduce entry controls so that any firm or individual can enter any market, except in situations where they judge that low quality should not be tolerated. Massachusetts Institute of Technology. Wrong Empirically For many years, the U.
Wrong about How the Economy Really Works In Econ , students learn that, in theory, a pure market consisting of large numbers of independent buyers and sellers will produce goods and services in optimal amounts at the lowest possible prices. Real-world markets differ from theoretical models in markets in several ways — and good regulations can help those imperfect markets work better: Real-world customers often lack complete information about products they might buy, or have difficulty understanding technical terms describing goods like cars, pharmaceutical drugs, and mortgages.
Consumer protection regulations help by requiring companies to spell out the features and risks of their products. In the real world, markets are often dominated by one or a small number of sellers, who can limit production and force customers to pay artificially high prices. Anti-monopoly regulations can insure greater competition and fairer prices.
Unregulated markets do not take social costs into account. Unimpeded by public rules, anything-goes markets give us air and water pollution, employment discrimination, exposure to pornography by children, and other harmful results that most people in society abhor.
Wrong about Good Governance Throughout American history, governments have subsidized businesses and established conditions for markets to function. Related Content Briefs. Economists' Letter on Recovery Policy July 20,
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