Thursday, August 4, 2016

Howard Baetjer on Regulators as Monopolists

by Levi Russell

Howard Baetjer (Towson University) has an interesting article arguing that, in many cases, regulators behave like monopolists. I've written on the subject of monopoly several times over the last year or so (this one and this one are particularly relevant) and I've personally thought a lot about the ideas Baetjer explores in his piece.

The whole thing is worth reading, but here are some really good paragraphs:

Among the most important services in society is assuring the quality and safety of goods and services. We want assurance, for example, that our taxi drivers are competent and their cars are safe, that our banks have adequate capital, that our medicines are safe and effective, and that our schools teach our children well.

And yet the government agencies that regulate the quality and safety of these are legal monopolies. Those they regulate are required to abide by the government agencies’ decisions; the regulated enterprises have no freedom to choose different quality-assurance services from some competing entity instead. Government regulatory agencies are thus not regulated by market forces and, accordingly, they are not directly accountable to the public they are supposed to serve. ... They are indirectly accountable to the public through the political process, but that process puts so much distance between the public and the government regulator that regulators are effectively left unregulated.

So, government regulators are unregulated monopolies.
To be clear, these regulatory agencies do not have monopolies in the strict sense that no other provider of quality assurance is allowed to operate. For example, some taxi companies may distinguish themselves by enforcing particularly high standards of cleanliness and punctuality; banks could join associations that certify their exceptionally large capital cushions; and name-brand drug manufacturers try to distinguish their products as better than generics. In all these cases, however, the government regulator is the only quality assurer to whose standards all the enterprises in the industry must by law conform. Additional requirements over and above what the government requires are allowed, but the government’s requirements are mandatory. In this sense government regulators have monopolies. 

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