The Economist.com debate of this week was about Governments making things worse by intervening to regulate business and financial risk. I am surprised by the result of the debate, with “interventionist” winning by a slight difference.
In my view, we have not discoverd yet any method better than Free-Market to regulate markets by the law of supply and demand. Yet, the governments have a fundamental role to make free-market work:
- ensure Competition
- ensure the rule of law
- intervene in key social areas, to guarantee minimum coverage for all: education4all, health4all, justice4all
- protect basic goods (including housing and medicines) from speculation
- invest and manage public infrastructure making them available for all: roads, railways..(and why not, Broadband Internet Access)
Free-market and healthy competition are the true engines for innovation. Successful innovation not only rewards the innovators, but the society overall. e.g Internet and Mobile Phones are affordable to the lower income population, thanks to private investment and intense competition driving prices down.
Excess of regulation can never stimulate innovation and progress in the long run, even if in the short term it seems to work.
e.g. Protectionism in the car industry, as Argentina or Brazil suffered and Malaysia still does, may seem as a good practice to protect domestic car-makers. The reality is the domestic car industry becomes uncompetitive, car prices rise and the lower-income population ends up not being able to afford a car in those countries.
I agree the financial market might need some extra regulations, as a credible banking system is key for the economy. But that should not be further than establishing mechanisms to protect the savings of their customers from a bankrupt.