Open vs. Regulated Markets

Today I had a visitor who commented on almost all of my recent blog posts. You can read his comments here, here, and here (two comments on that last one). While B.M.'s comments rant at times, the point is reasonable. And he/she might be surprised at the degree to which I agree with the points. The core question is, what role should government play in regulating industries? The poster seems to see this issue as black and white -- communism vs. capitalism. He/she makes the argument that we should try pure capitalism in this country. I think this is a great idea, except that a short history lesson will tell you that this hasn't worked in the past.

Sure, the world hasn't ever tried COMPLETELY unregulated commerce (no governments?) but our own past here in the U.S. has certainly included periods of significantly less regulation. In fact a reasonable argument could be made that industrialists in the first half of our nation's history would look at the system we have today and decry it as socialism, or worse. By comparison to today, the 1800s in the US were practically a time without regulation.

However, arguments like the ones put forth by B.M. tend to ignore a few sad facts:

Capitalism is good at rewarding
(a) short term investment horizons
(b) the people who have the capital
(c) private interests

Capitalism is not good at protecting
(a) the environment
(b) workers
(c) the public good

Would B.M., for example, like to live in a country where the highway system had to be built by private enterprise? It is unlikely that the modern US highway system ever would have developed without a strong federal government. Part of the problem is that the "repayment" period is far too long and uncertain for industry to undertake this kind of investment. Without the perceived needs of national security (moving wartime men and materials rapidly across country) the Eisenhower administration would not have receieved support for this infrastructure investment.

Another interesting example is the FDA -- how many worthless (or dangerous) drugs might be sold on the market to unsuspecting consumers if we didn't have an agency regulating these products? Sure, you can criticize the FDA for some of its mistakes and some of its commerce limiting practices, but does anyone really want to live without an FDA?

And how about working conditions? We can plainly see the difference between our relatively safe and clean working environments and those in countries that have no protections for their citizens. Does B.M. want us to return to an economy on which children routinely die in factories because of unsafe conditions? Check our own history books -- this was what the US was like before regulation.

Finally, lets talk briefly about the environment, something we still do a poor job of understanding and regulating in this country (but definitely the battle of this century). Capitalism provides no motivation to protect the environment for our children or our grandchildren. If I can pollute Louisiana today in order to earn higher profits for my California corporation, why not? And companies routinely foul the water we drink and the air we breathe -- even with the regulations we have in place. And this is a global problem -- the pollution that China is now pumping into the atmosphere is rapidly becoming a US air quality problem.

So yes, I like the idea of relying upon private enterprise to solve many of our problems, but no I don't "trust" them to always do the right thing -- because that is not how the incentives of Capitalism work. This is not black and white, it is about finding the right shade of grey.

Now back to your regularly scheduled programming about the IP revolution - one entirely generated by business and which I wholeheartedly support...