Wednesday, July 6, 2005
The tension between liberating economic activity and regulating pernicious practices is a familiar one on contract law. In an important sense, contract law is just one of the mechanisms in society that enable and control private transactions, and the choices the society makes about the trade-offs are important to the societies' prosperity and development.
That's the thesis of a new article in the McKinsey Quarterly (free registration required) by Scott Beardsley and Diana Farrell, Regulation that's good for competition. Good regulations can boost economic performance, they say, but bad ones can be dreadful, and there's a powerful correlation between bad regulations and lousy economic performance. Using World Bank data, they note that bad regulations cut about 12 percent from U.S. productivity, a considerably smaller figure than for Japan (19%), England-France-Germany (27%), Brazil (43%), and India (61%). And a study of rich and poor countries says that the real costs of dealing with administrative regulations is three times as high in poor countries as in rich ones.
The authors aren't anti-government libertarians -- they offer a number of strategies for improving the results of regulation while decreasing its impact.