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To Regulate or Not to Regulate?

May 2nd, 2013 by Dexter Findley

The role of the state in business has long been debated, and is perhaps one of the most contentious issues of our times. In this post I'm going to argue that a medium is necessary, a halfway house between the two extremes of the spectrum.

Firstly, a little bit about business and its origins. Business is the trading of resources within an economic framework, and as a consequence has been happening, one way or another, for thousands of years, since humanity started farming. Resource surplus is a key prerequisite: and as such was only possible when we moved from subsistence living (hunting, gathering) to more bountiful means of food production. Before then, the very concept of business, economy, exchange, commodity, profit or indeed cost would have been alien and non-applicable. Humans would have had to look out for each other to survive, everything would have shared and what little exchange occurred would have happened through anarchical mutual aid.

But farming brings with it considerably more resources, and enables some people to do other activities apart from trying to survive. It brought with it social hierarchy, permanent settlements, militarism and most importantly for us, merchants and trade.

This is where things get interesting. Simply because it was only the elites who could originally afford to trade their resource surplus, the first business transactions would have been conducted between the chiefs, princelings and nobles of the time, i.e. the people who acted as the equivalent of the 'state', or the ruling force. Later, they employed merchants to do their trading for them. As time passed, 'common' folk began to get involved, which led to the creation of a 'merchant' class. In the West at least, rulers would have maintained their hegemony by imposing taxes on the merchants, and excluding them from the elite social stata.

Everything changed with the Industrial revolution. For the first time it became possible for merchants to amass the wealth of kings, and to alter social practice through creating new trade routes, products and work schedules.

Naturally, the ruling bodies still maintained their hegemony through taxation. In these early days of capitalism, governments and rulers had a terrifyingly self-centred attitude towards regulation. Basically, there was none: anything was fair game, as long as the state got its cut. Mixed with colonialism, this essentially created the modern world, at a great cost. It was this system that led to the slavery of countless Africans, the genocide of Native Americans, the atrocities committed in the Belgian Congo, the suppression of locals by semi-autonomous groups like the East India Company and De Beers, and the appalling conditions of Victorian factories. Aftershocks of this state-mandated laissez faire capitalism are still felt today, with parts of the African continent beset by perpetual warfare, significant wealth divides along race lines in the USA and South Africa, and to a degree the UK.

Clearly, something had to change. The socialist movements in the 19th and 20th century were largely in response to this unmoderated craving for profit at any cost, but they too brought with them their own issues: from crippling unionism and lower quality of life to mass starvation at worst.

History shows us there has to be a balance. First off, if there has to be any governmental regulation of business, it should be because the government represents the public, not the elites. The days of anything-goes-as-long-as-we-get-a-cut regulation should stay firmly in the past. So, what is in the public's best interest? To what degree should business be moderated?

The argument for minimal government intervention, the 'objectivism' of Ayn Rand and much of the American Right, goes something like this. Through the profit motive, businesses will spearhead technological innovation, create infrastructure that everyone will benefit from, find ways to lower the cost of amenities and will increase the collective wealth and quality of life of a society. Therefore it is desirable to limit their actions as little as possible, through removing taxation and legal regulation. It believes that the people don't need to be 'mollycoddled' by the government, that individuals have the agency and capability to choose products that will benefit them, and that society is inherently mobile: if you innovate, if you have something beneficial to provide humanity, you will go far in life.

Opponents claim this would lead to exploitatively low wages, wealth being concentrated in the hands of a few and massive environmental degredation. Yet it is undeniable that business, through the profit motive, has created or honed every modern amenity we take for granted.

As for the other end of the spectrum, the argument for high levels of regulation runs thus: the means of production should be collective, not privatised: only then can everyone truly benefit together. This means high taxation to redistribute wealth, public-owned industry that need not adhere to the profit motive and considerable legal regulation to protect the rights of workers and consumers.

Opponents of this paradigm claim this stunts the collective wealth of a society, does nothing to progress quality of life or level of technology, and removes individual agency, innovation and choice. It also promotes free-loading, where elements of society do nothing to contribute to the collective good, yet receive the same resources as a person who contributes far more.

Clearly there are issues with both. The latter limits personal choice and promotes social and technological stagnation, it is more a method of 'getting by' than a true model for progress. But the optimism of the first fails to take into account two critical things: less-abled individuals and the environment. How can a less-abled individual get by in a society based around unregulated business, when they cannot work and cannot innovate? Arguments for Social Darwinism can be discarded immediately: they present no solution to the problem, just a cruel-hearted ignoring of it. The only feasible solution are support structures put in place with no hope of end profit: i.e. a welfare system. But such a system requires resources to run: hence the need for (some) taxation.

But the big elephant in the room for unregulated business is the environment. Capitalism is only sustainable if resources are infinite: and they are not. Combined with population expansion, this makes the ideal of ever-increasing quality of life for everyone a mythical one. The only way we can hope to survive as a species, let alone as a business-conducting society, is to regulate our resource consumption and ensure resources are used efficiently. Whether one takes the carrot or stick attitude to regulation – green incentives or punishments for wastage and pollution – is an academic concern. The point is, it needs to happen.

We need to come to a point where innovation is possible and personal agency is expressed, but where the environment is maintained and the weak are upheld.