The case against self-regulation
Let’s begin your working week – or not if you’re retired like I am – with further discussion of what we started in yesterday’s JuicyLesson which I suggest you have a look at – if you haven’t done so already – just to ground yourself in some of the relevant details on which today’s lesson will be based.
For those of you not inclined to peruse yesterday’s JuicyLesson let me put today’s in context. It as well as Sunday’s both derive from a conversation I had with an ex-student over lunch recently in which a fundamental difference in our respective points of view emerged over the role of government among other things. He characterized governments as intrusive and as impinging on individual freedoms, an opinion to which I take strong exception. He believes that government should stay out of our lives and that society should run by self-regulation. Like businesses are able to regulate themselves.
There are four pillars of capitalism including private property, competition, free enterprise and last but by no means least – pure, unmitigated profit. I cannot imagine a situation where businesses would impose regulation on themselves in order, for example, to protect consumers, which is why governments are charged with this responsibility in our present-day economy and do make laws to this end for the most part. For example, who would you rather regulate air travel, the airline companies themselves or the government?
Are you aware of the fact that car companies had to be forced by the American government to outfit the vehicles they manufacture with life-saving seat belts because these car corporations knew that there is an inverse relationship between price and quantity demanded: in other words putting in seat belts would drive production costs – and by extension – the market price of cars up, thereby causing the overall number of vehicles demanded to decrease resulting in a decline in revenue and therefore in corporate profits as well. So to argue that self-regulation in the car industry at least can work in the absence of government legislation is dreaming in technicolour.
What about the banks? Their monetary policies determine to a large extent what transpires economically in western society. One important element of contemporary monetary policy is the level at which the bank rate – i.e. the interest rate paid by the charter banks in Canada and the USA to borrow money from the Bank of Canada here and the Federal Reserve there – is kept. These central banks – the bankers’ banks in other words – regulate the bank rates in their respective countries and they supposedly do this while considering the overall state of the macroeconomy in terms of general levels of inflation and unemployment.
In inflationary periods, the Bank of Canada will raise the bank rate to keep a lid on rising prices which define inflation. Alternately during recessionary periods the central bank will lower the Bank rate which will cause the chartered banks (TD, CIBC, RBC and Banque Scotia, for example) to follow suit thus making it cheaper for individual consumers and businesses to borrow money to spend during economic slumps thereby increasing aggregate demand for goods and services which in turn creates jobs.
In a scenario where the financial institutions regulated themselves sans government intervention, the banks’ motive to make the greatest possible profit would determine the rise and fall of interest rates with consideration of the overall state of the economy coming into play only insofar as it affected the size of their profits.
For instance if the chartered banks decided to keep the general level of interest rates high in times of recession because they believed that that would be good for their profit margins, then so be it and to heck with the state of the economy as a whole. The only reason that banks would concern themselves with high levels of unemployment in that type of system would be when the elevated percentage of jobless workers began to negatively affect their bottom lines. Otherwise banks couldn’t care less which provides a reason for government regulation within the banking sphere of our economy.
It thus appears that government regulation in the financial sector is essential if the ups and downs of the business cycle are to be minimized and so that another mortgage crisis like the one that occurred in the United States several years ago (which caused millions of people south of the border to lose their homes) can be avoided in future. Those tragic circumstances only skim the surface of what could happen if financial institutions were allowed to carry on in the absence of government regulation.
What about tainted food and unsafe drugs or other unhealthy goods being marketed because they can be? This would be the case if business owners were allowed to engage in self-regulation in the absence of government intervention.
In a mixed market economy like Canada’s, governments have other roles to play aside from regulation and formulating monetary policy, the latter implemented through our central bank. The government also grants subsidies to business as well as owning Crown Corporations such as the CBC, and Hydro-Quebec which is a provincial crown corporation referred to as a Societe d’état in our province. One important function of government-owned and operated corporations is to keep prices for essential services like electricity down in the interests of consumers. If private companies ran Hydro-Quebec, we would pay a lot more for electricity than is presently the case. Petro-Canada performed a similar function for gasoline that Hydro does for electricity before being privatized by Brian Mulroney’s Conservative government in the 1980’s.
So let’s agree that self-regulation is not a good idea in today’s world. However, as we saw in yesterday’s JuicyLesson in a different type of society there would be no private property, no money and no government and thus no possibility of government regulating anything since government, per se, would not exist. I am talking about Communism here, not Communism in its corrupted form as it exists today, but ideal Communism.
Before going any further, I know that I turn people off when I mention the word Communism or the name of Karl Marx pictured above. Why is that? Possibly because people view Communist ideology as contradicting the notion of individual wealth and Karl, the only “Marx” that really counts, as the proponent of an economic and political “system” which would destroy the dominant capitalist bourgeoisie, the powerful oligarchy within our present-day mixed market economic system, as a threat to their dominant position within that system.
But stop for a minute and think about the word “communism”. What could possibly be wrong with a system the name of which is derived from terms like “communal”, “commune”, and “common” as in the term “common ownership”? Obviously if you own a means of production such as a manufacturing enterprise you have to do anything you can to protect your source of wealth and therefore you have to hate and be wary of Communism. But if you are part of the lower middle or working class what do you have to fear from a system which promises a total redistribution and equalization of wealth and power? I have always believed that if everyone who could have benefited from an increasingly egalitarian society would have voted for the N.D.P. when that political party was really an organ of the socialist state and before it moved to the right, that this party which has never formed the government at the national level would never have been out of power.
But there is something about the mere mention of the words “Communism” and “Socialism” which turn the common people – the majority of society in other words – off, making them see “red”, because they equate both of these terms, especially Communism, with the old Soviet Union, the sworn enemy of both capitalism and democracy during the Cold War era. As yet it would appear that most people do not yet know their own good; this is really unfortunate because until people reach that certain level of consciousness the rich will continue to grow richer at the expense of the less rich.
However, it is only within an ideal Communist and classless society that self-regulation becomes a viable option. Marx said that government only endures so that the middle class can use it to pass laws which end up exploiting the workers. Therefore in lock step with the classless society, an additional feature of ideal Communism, government as we know it would cease to exist; then and only then can self-regulation in the interests of sharing the wealth be seriously contemplated. In today’s world, self-regulation would be a death knell for the majority in society as we know it.